Forecast 2010 


Webinar of Jan. 13, 2010


Mark Reed:  Good morning, afternoon, or evening, depending on where you happen to be. Welcome to Forecast 2010: New Year - New Decade. This is Corum's annual M&A report to which we invite software executives from around the world. Let's look to the next slide please. We have about a dozen speakers today, six on our panel of experts and six from Corum Group. I am going to dispense with introductions because those will be done in line with the presentation.

I am Mark Reed, Executive VP based here in Seattle. I will be moderating. Thanks for joining us. I think at last count we had almost 500 executives registered for this event, 24 countries in North America, South America, Europe, and Asia.

We have an incredible slate of speakers today, and this is the agenda we will be going through. We will wrap up after the panel of experts with a Q&A session. Let me first get into some logistics before I pass it over to the speakers.

Today's conference is being recorded and will also be rebroadcast on Thursday, the 21st of January at 9:30 AM Eastern, 15:30 Central European Time. Also, in about 24 hours, you will find a link to this on the Corum Group website, or you can email a request for the archive to pats@corumgroup.com.

We will keep this event to about 90 minutes. As I said, Q&A will follow our speakers. Please ask any questions that you have during the presentation. Use the Q&A window on the right hand side of your window please. We will not be using the phone. And please also direct your question to "All Panelists". If you select "Host" or any other option, your question will not be seen and put into the queue. With that, I will turn the floor over to Bruce Milne.

Bruce Milne:  Thank you, Mark, and welcome. We have a lot of ground to cover today, so I am going to have to talk fast. First off, my heart goes out to the folks in Haiti. I used to work in the Caribbean for the Burroughs Corporation when I was 24 years old. That was my turf. Those people were so poor that when we shipped them seed corn, they would eat the seed corn. So getting an earthquake like this, the worst in 200 years, is an absolute disaster. Our hearts are with them.

Let's go back, first, to 2008, December 18th. We ran a webcast. 600 companies signed up and it had nothing to do with M&A. It said, "Worried about your company's future? You should be." And we are in the M&A business. We have done 220-230 transactions, so why would we run this?

Well, we are the largest educator in the industry. We do about 100 events a year around M&A and how you build value into your company. So this should fit the issue about positioning and models and such, but if you go out of business, you can't be much of a client. Because we saw a time when the politicians and the analysts were still debating whether or not we were in recession‑-the time, as a CEO, to make some cuts.

So I won't go back through them. We will just compare where we are now. Back then, consumers were missing in action. Unlike past declines, they have come back, but I have seen a lot of small retailers go out of business.

Financial systems are wounded. They say they are better, except the issued story warning this morning. Stocks are decimated. They went down further. They said they were going to go down further; they came back.

The biggest run up, by the way, since the '30s. And correlating with that, we had the biggest run up in valuations. We got a record run up since last March; good news, and you will see that reflect in our presentation later.

Currencies are in disarray. We still have some issues with currencies and deflation. I think we are still deflating, frankly. We had some poor business confidence. That has turned around a bit. We forget the rising US tax rate. Thanks, Congress. We really didn't need that, and that there would be regulation happening.

It was uncertainty the duration of the downtown. We are now two years into it, going into our third year. I haven’t heard anybody state definitively we are out of it. We said back then, "More bad news ahead." We are just...we are concerned.

There are a couple of things, as we go forward, I will talk about on a macro level, some trends to watch. And these are trends that, as somebody who watches this stuff everyday and worries about it on a global basis, the ones that I haven't seen a lot written about seem to be really affecting us, at least in the way I am going to position it. I call it, "The Good, the Bad, and the Ugly."

First off, we call "business virtualization". There is a follow up here: it is positive for us. Then there’s the issue about the boomer burnout, and then I will just briefly touch on commercial real estate before I get into what is happening globally in our market and in the economy.

First off, on the virtualization, what has happened is this downdraft, this worst recession in our lifetime since the '30s, kind of shocked everybody into making changes. And they had to cut staff, look at working with people part time, or outsourcing, so it changed the way they look at their business model.

They challenged the issue about whether they needed fancy offices and all that staff. I mean, the reason you have all these offices is to house people, full-time people. If you have part time people that are virtual, you don't need them.

And more people are willing to work from home. Like, for example, the technology we are using today. Video conferencing, web conferencing-‑it is ubiquitous. Everybody has got it.

And there is a much greater use of virtual companies. We saw it in our industry for years, and years, and years. Corum has been partially virtual since 1992, but now we are seeing it in lots of other industries. Obviously, the green trend, expensive fuel, pollution, etc.-‑ don't use your cars.

There is a problem with small retailers. You know, like my favorite little store that used to do some antiques and things, well, they went out of business. It is hard to keep up with the online stuff.

And there are some really interesting things. We are in the process of a big move now. We have been in the same space for 19 years. And it is like time lapse photography. We go back and I see what happened 19 years ago was important to us. For example, file cabinets. We were moving about 30 file cabinets. Well, we don't need but about four of them.

Computer rooms: Well, we don't have computer rooms, we have server rooms, and we just moved that offsite. So the point is about space and virtualization, it is affecting us. Fewer employees, though, is meaning greater use of technology. Everybody wants the latest and greatest technology.

The next point is really about...well, I call it "Baby boomer business burnout." Say that a few times. But it is something that I am conscious of, being a baby boomer and having a lot of friends that own businesses in different industries. Baby boomers, as you know, control well over 50% of all small business. In fact, maybe it is over 70%. But let's just go with 50%.

Small business has been the source of 90% of the new jobs in America for the past three decades. Government doesn't create jobs. If an entrepreneur has an idea for a product or service, and he bets his life or fortune in that idea, that is the person that creates jobs, OK?  They have been through rough times before. They took a really rough hit this time. They have been cutting to the bone.

One of the problems, though, is that the financial system has basically sucked the air out of them because they are pulling credit lines. I have two friends, for example, who have had credit lines in place for 20 years and who were arbitrarily just cancelled. They use those credit lines to run their business. So they are now on savings, in some cases.

They are facing more regulation, more taxes.... These are people in their 50's and 60's, and their attitude now is: do they want to really reinvest their life savings, going forward, to face a government that says, "Thank you for making some money. Hand it over." That is their view. It may be right or wrong. The next election could change that.

But there are a lot of them that are saying, "No mas. I don't want to take that risk at this point." And by the way, I don't think those people are counted properly in the job stats, self‑employed like that – business owners.

So that is one. What that leads to, by the way, is a fairly ugly situation in commercial real estate. If you have listened to these conferences over the last year, I have been talking about this. But I believe this is going to be hurting the banks dramatically, because some people said this could be as big as the private home mortgage problem.

The issue here, though, is it takes a while to work itself through. People move on. They take smaller space and move into to some space... It takes a while to work that through, but it is working itself through.

We are supposed to be the 8th best commercial economy in the United States out of 50, and I can tell you every building in our area has some "for lease" or "available" signs. We are going to see the Feds...we are seeing devaluation and inflation in valued commercial properties, both office space and retail, and it will continue, as you can see from this slide.

So a couple of comments on things that I personally worry about…

What is going to happen though is...I was at a party on Saturday, and everybody said OK, we were talking about the economy, what is the single biggest issue that we are all worried about and everybody said the same word, jobs. OK. Maybe because some of them lost their jobs or they had to cut back employees. So what we are seeing is I don't think that employment in construction or retail is going to come back soon. People will debate with me on manufacturing, but I think the manufacturers are going to get much smarter and are going to outsource to subcontractors and maybe even offshore. So it’s not going to come roaring back no matter what the government says. So in general be cautious. Now having said that you will see later tech is doing very well. We had a great second half. We are going into a great 2010.

Let me just give you a brief update what is happening with the economy. I have broken it down into five sectors: global economy, China, US economy, employment, technology.

First off, global economy. There have been a couple of surprises and these are the headlines just in the last few days. Europe unemployment unexpectedly jumped, they are at ten percent. They thought they were going to get better. Canada factory output, Japan has been having trouble with the Yen; their factory exodus is causing some problems for them. Trichet warns of France economic ills. Britain is called the sick man of Europe with their debt. Mobius too, everybody watches for the emerging markets, says there will be a 20% fall in those stock markets. The headline "Kuwait Tests Investors" - well who isn't testing investors these days. OK.

Then we see Dubai's first foreclosure. I love that they put up the tallest building in the world. 2700 feet, a little over a half a mile. To put that into context, the taller buildings around the world are like half that. But, there is a lot of empty space there and they are going through their first foreclosure.

In contrast, India's production was up 11.7% last month, the best in 25 months. Poor Greece and Portugal though, on their currency and their debts they are facing a “slow death”. Germany contracted five percent in 2009 and they still have relatively weakened orders.

But, overall Bloomberg says confidence is rising, it's over the 50% mark. So generally people feel a little bit better. But, there are a lot of signs that it could create some concern for us.

In China, they raised their key interest rate last week and down below, and you'll also see they also raised their capital requirements. The same thing we did with banks because they are worried about loans that are creating a bubble. The stock markets slumped on that. There is a lot threat of overheating. People think that it is very similar to Japan in the late ‘80s although all the worries about Japan in some cases took four, five, six years to materialize. But there clearly is, hypothetically, a big bubble there.

Their exports jumped 17.7%, the first increase in 14 months. I thought it was interesting this morning; Google is in row with China. Their site was hacked, and they are threatening to leave China after ending their self censorship. Doesn't exactly apply to China but to China in tech.

On the US economic front, US consumer credit dropped by $17.5 billion, biggest decline on record just recently. The US dollar continues to slide in the first of the year. Consumer credit has fallen $118 billion since its peak in 2008. That is a lot of loss in purchasing power.

Net worth down $12.9 trillion since 2007. OK, so were you all running out and buying new cars and making investments? You're probably cautious. Bonds just now are rising because people are concerned about the economic recovery sputtering and having a double dip. Discount retailers are forecasting a rise in sales but, by the way, they are also saying they are going to drop almost 10,000 employees.

In terms of employment, my hot button these days, as you can see from my stats on the baby boomers and such, is that 1.7 million workers have opted out of the workforce in the last six months. A record number of discouraged workers: 939,000.

Real unemployment is over 17.4%. All right, 17.4%. And then, there is the household employment. These are the people not measured because it's employment in houses, and they also don't measure really the self-employed very well. That fell by 589,000. So the job claims are higher than expected last month. They thought it would be about a 45,000 increase in job claims, about 85,000.

So that's the update.

Technology: We are seeing a rise in spending. Seagate CEO said they are seeing it go up and that's actually a pretty good barometer I think. You're going to see Google go on under attack, they are fighting China, France wants a Google tax. Anytime you get big, everybody wants a piece of you, right?

Buyer interest though, this is from the 451 conference recently and there are reports. We work closely with them, and they are a co-sponsor also of the World Financial Symposium. Their stats show buyer interest in making acquisitions is about 50% over last year. Tech asset acquisitions, specifically asset acquisitions, were the highest in a decade. These would be like divestitures, and private equity folks from last year; this year they tripled their interest in making acquisitions and it is very good news as you will see from the rest of my report here.

The deals of the decade: I was asked to give a summary of the deals of the decade. I got this really finely written piece with all kinds of detail on 190 companies. Thank you, guys, it was great, but I had to cull through that and I will make it a couple of notes here.

2000, though, worst deal in the history was AOL Time Warner. Without a doubt, probably in any industry...we debated around here on the valuation of that thing but it showed the absurdity of the dot-com era.

In 2001, the one that I think was important was IBM. IBM and Informix there. There they were trying to buy a platform that could take on Oracle and that was sort of foreshadowing the database wars and the consolidation to come. We also saw around that time a lot of markets were consolidating during this period. CRM is one that we did about a half dozen transactions in.

2002, contrasting the lousy deals of AOL Time Warner, eBay bought PayPal. That was brilliant. And today it constitutes, some people say, over half their value.

In 2003, EMC made three acquisitions but the most interesting was the smallest one and that is VMware. By the way, EMC almost always shows up in the top 10, and you will see that later.

They bought VMware and that put them in the front‑runner position of the virtualization wave that is up to the entire infrastructure. VMware is now worth $17 billion. 30 times, 30 times what EMC paid. Nice investment. We also saw at lot of consolidation at that point in the enterprise space. People buying smaller fish and then folks like Microsoft getting to that marketplace.

2004 - the one that I like was Lenovo and China. China flexed its muscles by paying nearly $2 billion for one of the leading PC brands, maintaining the right to sell it under the IBM name. If we had any doubts about China arriving, they squelched it at that point.

In 2005, we started to see the private equity guys flex their muscles with Silver Lake buying SunGard. We know SunGard well. I actually did some consulting with SunGard, the company and the chairman years ago, on a company that later on sold to Great Plains, which is now part of Microsoft. They did about a half dozen deals with SunGard. Well they were acquired by Silver Lake in one of the largest deals in history, over $11 billion, all right.

About that time, we were also seeing some consolidation in '04, '05 periods in content management security. In '06, the muscle of the private equity guys out bidding everybody showed up with Infor SSA. Now the private equity juggernaut that was Golden Gate behind Infor, they did about 11 quick acquisitions and that put Infor right away in one of the top three ERP firms. We also started to see some consolidation of the BI space.

2007, I think the most interesting one was Nokia out-bidding Microsoft and Google for NAVTEQ, paying over $8 billion. NAVTEQ currently powers Google and Microsoft maps.

2008, the one we picked here is not the biggest one, but Sun MySQL lab opensource believers saw the opensource databases, like MySQL and Sleepycat, overtaking and beating up the big guys. What did they do? The commercial product vendors responded by buying them and making them disappear. That is what you do.

2009, guess what? Silver Lake was back with a majority interest in Skype. This is the first time we saw a multibillion‑dollar project deal driven largely by consumer Internet metrics and eyeballs. And while the PE guys had been gone for a year or so, they started to come back, even though they couldn't get all the leverage of the banks to do a deal.

So who ended up winning the race in the decade? Top buyers, guess what - Microsoft was the big dog. Cisco was right behind them, number two. And Cisco is very, very aggressive. Cisco will be our speakers on February 4th. Rob Adams, head of all acquisitions for Cisco, will be here or one of his folks on February 4 as our guest speaker. We have had Microsoft in the past, we just had Google a couple months ago. Glad to have Cisco join us in a few weeks.  IBM, always up top. EMC just started tons of acquisitions. Obviously, Oracle, Google, HP, SunGard, Yahoo, SAP. And we've had firms like Sun and others who came up just right behind that. And I'd have to give special nod to – they wouldn't show up in number of deals, but they clearly did some of the biggest deals that shaped our industry. This year, unfortunately, they only raised $246 billion, the lowest year in recent memory. And that's the private equity guys, folks like Francisco, Silver Lake, Summit, TA, Apax, Carlisle, Golden Gate, Bravo. And, of course, our friends at Vista and JMI.

We've had hundreds of millions of dollars in these guys, glad to see them back, because it portends good things for our industry.

Before we move ahead, I'd like to bring on Ward Carter, who was recently voted Chairman of the firm. He's going to be working on our Asian expansion. And with a brief discussion of what are some of the trends then and now going forward, before we go into some more stats and informed metrics on 22 different sectors. Ward?

Ward Carter:  I think it would be interesting to do a high‑level flyover of the technology topographic map, if you will, for the past 10 years. Including a then‑and‑now on the evolving technologies of the past decade, the evolving business models, and some of the M&A trends that we've witnessed. As you probably know, Corum is totally focused on software, Internet, and IT M&A. But we've been deeply involved in many of the industry consolidations that took place over the last decade, and a leader in creating markets for companies that often represent game changing technologies.

We opened the past decade with still strong M&A, and then the passing of the Y2K threat, all of the resulting in spending on IT. But that was soon followed by the crash of the dot‑com bubble.

We now close the decade with one of the greatest recessions of the past 80 years, yet we still see huge opportunities for innovative technology companies, and remain optimistic about the future of IT as we end this decade.

What will the future hold? Before we let our panel discuss this, let's reflect on some of the trends in technology over the past 10 years. Among those, look at the evolution from client servers to SaaS to cloud computing.

Ten years ago, much of the technology required to support cloud computing did not exist. But ubiquitous broadband connectivity has led not only to changes in the way we do business, but also in the way we communicate, from emailing to texting to all of the social networks and tweeting and so on.  And to how entertain ourselves, as we move from tape players at our sides to downloadable or online music and books and games, and other entertainment from the iTunes and the Amazons of the world. And, of course, the pervasive iPods and iPhones and other devices.

And how we record our daily lives on cameras of all sorts. And the tools we use to search for information, and the different devices on our desktops. And the different and new OSs that we run. And the convergence of entertainment and communications, with powerful pocket‑sized devices, starting with cell phones and leading to PDA, and eventually the very sophisticated smart phones from Rimm, Apple, Google, and others, that we all carry.

We also saw that to create and build value, companies needed to go beyond just having cool technology. They also needed the right business models to allow them to capitalize on the opportunity.

Looking back at the early years, when all it took was an "e" prefix or a “.com” suffix to your name to get rich quickly, companies sought breakneck growth at any cost. And investors were willing to fund that growth on the promise that the new Internet model could defy traditional economic models, let alone common sense.

Back in the days when money was easy to raise, Silicon Valley programmers were awarded new BMWs as hiring bonuses, and a quick exit via an IPO was possible for almost anyone.

But now we fast forward 10 years to a much more sane focus on sustainable business models, real revenue‑generating customers, and profitability. Yes, real revenue, not value based on click‑throughs or eyeballs, and today's realistic valuation scenario and M&A as the most likely exit, instead of an IPO. An emphasis on recurring revenue and quality teams - the availability of web services and other tools that allow for fast and relatively inexpensive development, especially when combined with inexpensive off‑shore development teams.

So, next slide.

What has been the impact on M&A over this period? Certainly the challenging economic times have caused many buyers and sellers to rethink their M&A strategies. Buyers are still very active, as you will see from the data that follows. We've also seen the evolution of deal structure, valuations, and even the due diligence timeline that legislation like Sarbanes‑Oxley forced on public buyers.

The challenges of fundraising have slowed many buyers, and at the same time, the flattening of the world has led to a surge in cross‑border deals, as technology strives to achieve strength beyond their own borders.

We've also witnessed massive consolidation in many markets, to the point that one freestanding sector ‑ such as ERP, CRM, business intelligence, and others ‑ have ceased to exist after waves of consolidating acquisitions by larger players, such as Oracle, Microsoft, IBM, and others we've mentioned.

We believe we are poised for another very exciting decade in technology and in tech M&A. And the bet is that the next decade will be just as volatile, but yielding rich opportunities for entrepreneurs to create new companies or new solutions, and build value and achieve successful M&A exits.

With that, I'd like to hand the podium back over to Dougan Milne, Corum's director of research, to talk about trends in valuations.

Dougan Milne:  Ward, thanks for that. And really it's been an amazing decade, watching the way our world has adapted and evolved because of technologies that are coming out of our industry. It's been very influential. If I've learned anything over the past 10 years, it's that I know I would never attempt to make predictions about the next 10 years. I might make a stab in five years, but 10 years, you can forget it.

If anyone tells you they foresaw all this coming, or any of this coming, the way we're doing business now and the way we're socializing now and the way we're taking leisure now, even the way we compute now ‑ if somebody says they knew that was all going to come, they're probably just blowing smoke.

We're going to get down to the charts and the graphs and the statistics. We're going to be looking at the research now. Open the fire hose, so to speak. And I assure you, we've got a lot of data that Corum’s been archiving and tracking over the past 25 years. In fact, the toughest thing about putting this presentation together today was deciding what and how much of the data to give our viewers before they drown in it all.

Let me give a brief overview, though. We're going to be splitting this into two parts. The first of which is our industry overview and historical trends. We'll have some speculation on the market for 2010 in there. And the second part is a more in‑depth look at Corum's coverage of the broad six markets, and of course the 26 sub‑sectors that make up those broad markets. We'll talk more about that in a few minutes.

But first, let me introduce Tomoki Yasuda. He's an analyst here at Corum, and over the years he's become absolutely vital to our team. There's been a lot of things that you can teach in the tech industry, likewise there's a lot of things you can learn with enough time. But he's one of those guys who just gets its. So I'm going to turn it over to Tomoki.

Tomoki:  Thanks, Dougan. First off, on the public market side, we have three indices. The NASDAQ, represented by the blue, the S&P Tech by the red, and the Dow by the green. Equity markets tended to trend up throughout the year, with S&P Tech index being the strongest performer, which kind of bodes well for our industry. From the start of January to the end of December, we see that the index has roughly risen 30% from its low in February. We also see a steady up‑trend in the Dow markets as well. We did have a slight dip between September and November, but since then the market has rebounded and we see steeper growth until the end of 2009.

With the equity market improving, we see public buyers initiating and concluding more deals, releasing some of the pent‑up demand that was prevalent earlier in the year. I'll talk more about that later.

In addition to the rise in equity markets, we saw some renewed life in the IPO market as well. Q1 of 2009 was dead in terms of public offerings. Not one single industry produced a candidate. However, toward the latter half of Q2, we started to see tech IPOs open up once more, first with IPOs from SolarWinds and OpenTable, then throughout Q3, we saw more IPOs from a number of software vendors, including but not limited to LogMeIn, Rosetta Stone, CDC Software, and Fortinet to name a few.

Overall, there were around 11 tech‑specific IPOs in 2009. For 2010, we see more companies fighting with the SEC to go public, and the S&P just announced the filings. UA.com has been seeking to public for some time now. Other vendors like MyTown and Red Prairie are also set to go public in 2010.

Our next slide represents the overall M&A market activity between 2002 and 2009 in terms of total deal volume and total deal value. The total deal volume is represented by the bar graph below, and the total deal value is represented by the line graph above it. As you can see, there is a direct correlation between value and volume in the graphs.

In 2003, we hit the bottom in terms of deal valuation and volume, and the next year we see an exponential growth in value and a moderate rise in volume. This can probably be attributed to the larger deals that were happening back then, such as Cingular acquiring AT&T for $41 billion, and Sprint acquiring Nextel for $38.9 billion, respectively. More carrier to carrier deals.

We see an explosion of growth in 2004 and 2006 when activity peaked at 4,000 deals, $457 billion in transaction value. From then on the M&A market began to cool, with transaction value falling steadily until those numbers reached pre‑2004 numbers, although transaction volume seems to have stayed at that 2005 level.

Which leads me to an interesting point about the 2008 and 2009 numbers. With such a stagnant M&A market in the first half of 2009, it really does amaze me that the numbers came out around the same as 2008. And we saw steady market activity throughout the year. This speaks volumes about the pent‑up demand that was present in the latter half of 2009.

Since September, we've seen a plethora of mega‑deals, deals that were over a billion dollars in activity. So I was really surprised that we caught up to our last year's level. Transaction value is a different story, however. We show a 50% drop between 2008 and 2009.

Although there is a major decrease in deal value, that could also be attributed to the rising trend of more undisclosed deals in this past year. And I will talk about that more in my next slide.

This is a Corum Index. The Corum Index represents an overall view of some important totals, averages, and metrics that we keep a record of. We use this index to assess and analyze the general health of the M&A market.

Here we have a snapshot of 2008 and 2009, so we can compare and contrast specific data points. First, we have the number of transactions between 2008 and 2009, which have remained almost exactly the same level, which as I said before, was mainly due to the surge in deals before the end of 2009 and the drop of deals before the end of 2008, pretty much balancing out the numbers between these two years.

We have the number of mega‑deals next. Mega‑deals are deals that are over a billion dollars. There was in uptick in the past year, with 22 as opposed to 18 in 2008. Interestingly enough, in the past four months we've seen more mega‑deals conducted than in the rest of 2009. I was just thinking we've seen the major majority of the mega‑deals conducted since September of last year, as I said before.

It looks very promising for 2010, as leading firms give a broader market direction and spurs more M&A down the chain to the second‑tier and third‑tier players. Another factor I'd like to point out is more of these mega‑deals have been conducted by private equity firms. It's good to see the private equity guys back again.

The next largest deal of 2008 was a $13.9 billion acquisition of EDF by HP. And the biggest and still‑pending deal of 2009 was the Oracle and Sun deal, at $7.4 billion. Next, we have the average deal size and median seller size. The average deal size has not changed too much. It's gone down about 20. And the median seller size has gone up about 15.

The next point, the number of VC‑backed exits. It tells a pretty interesting story. Although you can't see it in the numbers, which remain relatively the same, the VCs have had a fairly up‑and‑down trend these past two years. A few data points. The VC‑backed have been on the decline since 2007.

In 2008, VC‑backed exits plummeted towards the end of the year, showing a major drop‑off in the number of exits, but in 2009 we had the opposite trend, where the IT M&A market began to thaw towards the second half. The number of exits rose dramatically.

Due to the turbulent markets and the selling of distressed companies, a lot of VCs are left with solid portfolio companies, with in‑house cleaning they did. So this will be something the VCs think about when raising capital in 2010 and revamping their portfolios for future investments.

Next we have percentage terms of undisclosed. We've been seeing an increasing trend here actually throughout the year. A couple of things point to this. With a tougher economy, buyers are pushing down valuations of acquisition targets and making it less probably that buyers will be required to report prices. A lot of CEOs may not want to disclose how far they will negotiate down or how "cheap" their deal was. Another factor is that we've been seeing more asset deals, which historically have not been reported as often as traditional acquisitions.

Next we have the cash metric. All‑cash deals are still below 3%, as buyers try to mitigate risk and get discounts by putting more complex deal structures on sellers, more cash in stock mixes, more earn‑outs, stuff like that. It's still a buyer's market overall.

The last couple of data points represent the percentage of targets with where public, which traditionally is a lower number. And the percentage of public buyers, which indicate how active sector leaders have been in acquisitions. Not surprising for 2009, the numbers have been down a bit.

Here on the next slide, we have a fun little factoid we put out, this was M&A activity for January for 2002‑2010. The first two weeks, actually. We compared and contrasted all of them. As you can see, in 2010 we're currently ahead of 2009 numbers by at least 20 deals. We're looking more like did back in 2005 and 2000 range numbers, some of the years in tech M&A.

Although the numbers can be open to interpretation, I believe this does at least give an early indication that 2010 is not going to be like 2009. Things are looking a little bit brighter for the new year.

With that, I'll hand the mic back over to Dougan.

Dougan: Thanks, Tomoki. Actually I like this slide a lot. It looks like we're up about 20%. Actually we've seen a pretty high influx of new deals happening just in the past few weeks. I know this is a little bit of a funny slide, but we decided to put it in there anyway.

I'm going to be going through and talking about our six broad segments. We put them into six broad segments basically for brevity's sake when we report on them on a monthly basis. But those six broad segments break down into about 26 sub‑segments. You're going to see what I'm talking about here in just a minute.

We're going to start with the horizontal application market. The horizontal vendors, they've done really well as a group. Unlike many other sectors, their bottom was actually back in January versus February, which you'll see from most of the other groups. Enterprise IT sales coming back from 1.04x, trailing 12 months, to 2.41x. I hope a few of you were invested in that, that's about 150% there.

Sub‑sectors, you're going to see that I divided these up. And this was the one public opportunity we have at Corum for you to kind of present these different sub‑sectors. But we need to be conscious of time, so I'm not going to be talking about each one of them individually. We also need to conserve the landscape, so you'll see that some of these I've actually put them on the same slide as the big broad markets.

But you'll see there are also some samples of a couple of the companies that may be represented in those groups as well, the sub‑sector groups.

In terms of the big winners that we saw here, definitely HR, business intelligence and CRM did very well. Also the horizontal other category did very well. The horizontal other category is just that, it's difficult to define. Some of companies we have in here, like DELTEC, Trimble, DemandTec. But the various companies in this sub‑sector did do very well.

Because of the consolidation in 2003 to 2006 timeframe, content management has all but disappeared. We have just Open Text up there. You can see it on the bottom left. Kind of the stand‑alone in this category.

ERP in that same timeframe, we'll call it 2004 to 2007, had their heyday. They performed really well as a group. But they have had some of the spotlight taken off of them. Of course we've got companies in there like Epicor, NetSuite, QAD, SAP. They're all in the ERP group. All of them really have been pretty potent acquirers over the past few years.

CRM group, a little skewed when you look at those numbers actually. But of the public players, there's really only four in this space. There's two of whom really get it and two of whom are struggling. And if you're wondering how evident numbers like that are possible, I'm going to let our guest speaker later on, David Hayden of RightNow Technologies, he's going to talk a little bit about that.

I don't want to give away any of the secrets he’s got, for sure, but two of the words may help as a segue to that: recurring revenue. RightNow Technologies and Salesforce.com have a lot of recurring revenue. And what do we expect to see in this space? ERP is going to continue to do plenty of deals, primarily verticalizing, building market share for the specific domain expertise. I wouldn't be terribly surprised if somebody tried to fork over the cash for OpenText, which would simply eliminate that stand‑alone content management sector altogether.

That said, OpenText has been doing so well, I'm totally sure they'd want that.

Likewise, a few of the public companies comprising business intelligence will probably be getting more intelligence through acquisitions into the mobile business intelligence and other web‑related technologies.

Vertical applications, we saw the multiples hit the floor in the February, but clearly they've had a tremendous comeback in these past few quarters. Sales multiples back up over 2x and EBITDA pushing back up over 10x.

Looking at the sub‑categories, I happen to like the vertical sector very much. We have a great mix of some of the old, established technology firms, as well as plenty of limber, innovative types.

I'll just go ahead and start with some of the broad forecasting here. Take a look at the government table, top center there. It doesn't look so hot, and this seems to be sort of the nature of the beast, with the publicly‑traded government contractors, you've got Harris and Lockheed, you've also got Northrop Grumman and Raytheon in that group.

But don't draw your conclusions by the numbers you see here, because actually the government private sector is seeing very healthy deal volumes, and very healthy deal metrics. We expect to see this continue through 2010.

Speaking of healthy ‑ and I'll tell you right now the two groups we expect to do really well, both publicly and privately, a lot of deal flow, healthcare and energy. A combination of healthcare reform and energy initiatives, a strong desire and need to innovate. These two sub‑sectors are going to be doing a lot of deals and bringing a lot to the table.

I'm just noticing that IMS Health is still on here. Even though they're on this slide as a public company, they were bought out by TBG Private Equity Group. And don't be surprised, we're probably going to see a lot of private equity roll‑ups and buyouts in some of the various vertical sectors. The PEs love vertical plays, especially for those companies that showing positive growth and solid returning revenue.

Moving onto the consumer application space. Ouch. Yeah. There's a simple formula here, and everybody on the line already knows what it is. It's high unemployment plus decreasing household finances, multiplied by a complete inability to obtain loans. You get a massive depression in the consumer application vendors.

And these guys have been in a slump for a little over 18 months, I'd say, with very little signs of life. There are a few winners in here. We only have two sub‑categories, and you'll see I have those listed on the bottom.

In the sub‑categories, the winners, we've got Apple. Of course Apple has done amazingly well. But remember these numbers are based on median values, so Apple's kind of the extreme of the spectrum. But Adobe has also performed very well. Needless to say, those are really the only two companies in the space that have braggable numbers to report on.

And what's going on in the gaming sector, I actually thought that video games are more popular now than ever before in history. And we have answer for that, in fact we have answers directly from the source. Jessica Tam, she's a managing of director of the Casual Gaming Association, and she's going to give us a better idea of what's happening in the consumer space, and certainly with the gaming industry. She'll be speaking in a few minutes.

But until then, it's important to understand these past 18, 24, even 36 months, there's been a significant shift in the gaming industry. It's one that's left the traditional game vendors out to dry and kind of scrambling to innovate.

We're going to see a number of deals in this space in 2010, but they're going to be deals for casual, they're going to be deals for social, they're going to be deals for mobile. We're also going to see deals for outside realm of traditional tech, moving more into traditional media studios, companies like Vivendi, Sony, Disney, and 20th Century Fox. These are the guys who are going to be doing some of the major investing into these customer‑facing consumer applications.

Moving onto the infrastructure market. In general, the infrastructure space has to report really good numbers. Again, we saw the forcible evidence, sales multiples in February. And look how far we've come, we've nearly doubled on both accounts, very steady movement since Q1 of last year.

Looking at our sub‑sectors, I want to make kind of three points here. One is that this is one of my favorite markets to watch, because there is a lot of activity and there's a lot of very strategic play that goes on here.

Two, is that of the broad categories that we cover, infrastructure has, hands down, probably the most buyer power at the moment. And three, I do have to be careful of what I say today, because as I'm looking at our attendee list, I'm pretty sure we have at least one representative from every public company in this space that's watching the webinar today.

So that said, again we've got that mix of the old heroes and the new innovators, the enablers, the managers, the bridge builders and the gap fillers. Classically speaking, we continue to see some of the biggest deals in tech come out of this space.

For 2009, we had Oracle and Sun. We had Cisco picking up both Tandberg and Starent Networks. EMC with Data Domain. Of course the HP and 3Com deal. I'm not even sure if that deal had finally closed or not. Last I knew the shareholders for 3Com still had their arms in the air.

But the underlying question is will these high‑volume and high‑value transactions continue through 2010? And the answer is you can bet your bottom dollar on it. These companies, probably more so and more effectively than any other industry group strapped down during the recession. They hoarded cash. A lot of the spending was suspended or put on hold until a recovery became clear.

And I think what you'll see, if you were going to go to Yahoo Finance right and start typing in some of these tickers, you're going to see on the balance sheets cash. You're going to see a lot of cash.

And you won't want to miss next month's webinar. We've got the Cisco corp dev as a guest speaker. I'm really interesting to know what their shareholders are saying about the nearly $36 billion in cash on that balance sheet. I'm sure they're very pleased about that.

We should also expect to see some possible new entrants to the public space here in 2010, specifically in security, storage, network management, and/or systems management. But some of those candidates who are up for IPO in 2010 are also going to be candidates for getting swallowed by acquisition.

I'm going to steer clear of any more comments here. I went on a fishing trip over the summer with a fellow named George Kostiuk. He's a serious serial entrepreneur. He sold two of his companies with Corum's assistance to buyers on the list in front of us here. One of them was LANworks, that was a few years back, he sold them to 3Com. And more recently he sold his virtualization company Emboot to Double‑Take Software. So as far as entrepreneurs go, you don't get much more in terms of bragging rights than that.

So he's going to be talking to us in just a couple of minutes.

Let's move onto the Internet sector. In terms of public valuations, if we look back ‑‑ it seems actually that January is missing here. But that's OK, because February was the floor here. But if we're looking back, we literally doubled in this 11‑month timeframe.

Bruce talked about earlier that record run‑up in both volume and valuation, and that's clear here.

Again, we only have two sub‑categories, and I've listed them at the bottom. Both of them are stocks with very cool companies, very cool technologies. On the infrastructure side we have companies like ATG, Akami, Juniper, and Digital River. Some pure plays, of course we've Google, eBay, Amazon, Yahoo, players like that. Soon to be joined by AOL, by the way.

Acquisitions for both have been very strong. Amazon with the Zappos deal. Bezos was very excited about that one. I was also very excited about that one. I love Zappos. Google had more deals than we can count on our two hands this past year. The AdMob deal probably the biggest noisemaker, because of that 37xtrailing 12 months revenue.

And what Google has said publicly about their acquisition strategy going forward, we had Charles from Google's eight‑man corp dev team on in November and he echoed what Brandon Schmidt had been saying these past several months, "We're planning on doing a lot of acquisitions, and these are going to be deals for technology, they're going to be deals for talent."

So just talking about what's going on in 2010 very quickly, it's a little bit tough to say, because there are a lot of rumors flying around in this sector. You know, the media loves this sector and the consumers actually love staying up on this sector as well. But we may be seeing a handful of IPOs. We may also be seeing a handful of big transactions. But either way, the targets are likely to be the same: We've got Facebook, MySpace, Twitter, Linked In companies like Yelp, Skype, and Zynga. Skype, as you may remember, was bought off of eBay by some PE firms. A very possible IPO in mind for that as well.

I need to wrap up so we're going to move on to the next slide here: IT services. And we don't have any subcategories in IT services and that's for obvious reasons. But the theme and value being placed on the Indian and Asian firms, in particular, many of whom are IT services firms, it has raised some discussion here at Corum that we may actually put a subcategory in that because the disparoity in the western and eastern firms in that value is so great.

And, again, I'd like to point out you're natural inclination is to look at enterprise value to sales, but we do value IT services companies primarily on those EDITDA numbers. A few of the EDITDA came up pretty strong since January.

Let's talk about the trend really quick here. You know, at Corum we talk to a lot of small and mid‑size IT service firms, regional IT service firms, and they used to aspire to grow big enough to acquire those national firms. But nowadays, national is just too small. IT services firms need to be thinking internationally. They need to be thinking globally. And they have to adapt their practice and leverage those managed services in the cloud.

Today we've got another speaker coming up, Raymond Makela, actually, is here with me today from Codesic. He built this firm up to the point where it was acquired by one of those big global firms. He's going to talk a little bit about that.

So in conclusion, before I pass on the mic, I just want to wrap up by saying that I would love to spend the entire 90 minutes getting really granular and shoveling details of information out there about all these subsectors. It's just not practical though.

With that said, here at Corum, we've got more data than we can shake a stick at. So if there's anything that you saw today that really piqued your interest, you've got questions, or you just want to get a little more information on your particular subsector, what's happening in your space, give me a call or send us an email. We'd love to talk.

So that's that. I'm going to turn things over to our President, Nat Burgess. He's going to be monitoring our panelists as we listen to their expert opinions. And definitely good luck to everybody in 2010 and a Happy New Year.

Nat Burgess:  Thanks, Dougan, great summary. I'm really excited about our panel today. We've brought together six visionaries from six different markets. And how do we define visionary ‑ is the first question. Is it the person who makes the intriguing prediction on CNN? It's not, in our opinion, because no one goes back and checks. A visionary in our minds is someone who accurately predicts a market trend and then actually takes advantage of it. And all six of our panelists today have done that in the past and that gives them credibility in our eyes to look to the future and talk about what they see coming down the pipe.

The format here is simple: I'm going to briefly introduce the panelists. That panelist will then give us five minutes on the future of their market sector. When we've gone through all six, we're going to open it up to Q&A. You have a chat window in WebEx ‑ you're welcome to log in questions as we go.

And I'm going to start with Dan Shapiro. Dan is the Chief Technology Officer at Photobucket. And let me just put a simple question out there: When film gives way to digital and you no longer have a shoebox full of prints in your closet and you want to interact with people with photographs, with digital images, and you lose all your photos every time you upgrade your cell phone, what are you going to do?

Dan has the solution. The company just sold for $60 million and he's now CTO of the acquiring company. And, Dan, why don't you go ahead?

Dan Shapiro:  Hi. Thanks for the introduction. So, yeah, founded Ontela about four years ago, which specializes in getting pictures off of camera phones. It was actually a merger with Photobucket and in the process of doing it, it actually spun Photobucket out of Fox News Corp., who is the prior owner who purchased it for a reported three million about two years ago. So it was a pretty exciting transaction. We've been looking at this as a way to solve that problem with the next generation of photography. We think it's around mobile. We think the opportunity is around the camera phone and we think that by winning that space there is an enormous opportunity here.

And as I sort of look at the mobile market, which is the space I came from, and the Internet market, there are really three interesting things that I'm seeing going on. Now the first one, we're a prime example of and I'm seeing it happen in other areas, which is that large companies are taking a look at past acquisitions which may not have been completely integrated, may not have produced results they want, or may actually be going quite well but not providing the synergy with their existing businesses that they were looking for.

And we're seeing some of these come back out of the acquiring company and go private. Or even divisions that were never originally a stand‑alone company. So I think we'll be seeing more examples of this as the year goes on ‑ where large companies are taking interesting businesses and bringing them out.

Now, there are some interesting opportunities that this creates. The tricky part is finding one of these that's ready to go and where a deal could be made to create value on all sides by making that happen. But keep your eyes open for that as a trend over the coming year as large companies are starting to spin out some these assets and create some private.

There's a second thing that I'm looking at in the mobile space that's really exciting. It's something that we're thinking hard about how to take advantage of and I think there are going to be a lot of smart people who have wins and exits here over the course of the next 12 to 18 months, which is the 3G to 4G transition.

In the Internet space there was a pretty abrupt transition between dial up and broadband. And in mobile it's been a little more gradual as we had edge in 2G, which was clearly dial up, and 4G, which in some cases is better than home broadband. And we have this sort of bridge technology with 3G.

What's happened, though, is that over the course of 3G, everybody's been afraid to use the network. And what you've seen is mobile applications that have been network shy.

And it was only with the advent of the iPhone where the carrier, the one who's trying to protect the network, did not have veto power over the applications, that you started to see application vendors worry less about network consumption and more about user experience. Even then you'd see applications shut out of the apps store because the carrier would veto voice over IPs, streaming video, et cetera, because of reasons of bandwidth.

Carriers in 2010 are going to be looking for ways to show off their networks. And you're going to see a new swath of products that redefines what it means to use your mobile phone as you have megawidth connections whoever you are, wherever you go.

And this is going to be one of the most interesting and hot areas for growth. We're going to see some tremendous new applications here. I wish I knew what they were ‑ I'd go build them. I'd tell you or go build them myself. But you're going to see some really amazing stuff as these phones are permanently and universally connected to these wide area networks.

And finally, the third thing that I think is going to be something we see unfold ‑ Google and their acquisition strategy was mentioned and I think that Google in mobile is going to be the most important driver in M&A strategy, but not necessarily as the acquirer.

Google has been creating a platform in Android that scares the pants off of everybody else in the room. And the people who are probably most threatened and concerned about this being Apple, Nokia, and Microsoft with their respective mobile platforms.

I think what you're going to see in 2010 is all three of those as well as smaller acquirers like Rim and Motorola, maybe folks like LG and Samsung, looking to scramble and catch up with their services offerings to provide something competitive with the integrated suite of consumer services that Google offers for free.

So the navigation debacle that we've seen recently where NavTech was sold for four billion dollars and then Google immediately turned around and started giving this away for free suddenly leaves Nokia, not looking stupid because clearly they need that asset, but looking like "How did Google build this for free and give it away for free when we just paid a whole lot of money for a premium service?"

We're now seeing all sorts of challenges in the navigation spaces. Google's redefining this once very profitable segment into something that is just the cost of doing business on a phone. And I think you'll see more and more broadly phone vendors and, more importantly, the platform vendors looking to compete with Google than creating innovations on their own which in turn will get replicated by everybody else. And there is going to be an escalating war as people try and provide the best basic platform experience. And I think it's going to be perhaps the single greatest driver of M&A activity in the telecom space in 2010.

Nat:  Dan, thanks for your comments. That is fascinating and I also appreciate your time management because you're coming in right at five minutes.

Dan:  [laughs]

Nat:  We'll have ‑ go ahead and if you have questions for the panelists, again, you can put them up in the chat and we'll get to the ones we can on the broadcast and we'll answer via email after for the ones we can't get to. OK, second up we have Ray Makela and, again, I will just pose a simple question. If you are a partner and owner in a regional IT services firm that is a traditional legacy, quote legacy business you need to basically figure out how to get it strong enough and attractive enough to get acquired so that you can then move on and start thinking more to the future and to the next generation of IT services and where it is going and Ray and his partners have done exactly that.

They built Codesic up to a size where it was an attractive target for CGI. Ray does not work for CGI anymore. He speaks for himself today, but he is very focused on the next generation of IT services and where that market is going.

Ray:  Right. Great, thanks Nat. Yeah as Matt mentioned we grew Codesic over about ten years up to 115 employees focused here as a regional IT service provider in the Pacific Northwest. And one of the things is we look to the market early on whether we were looking to be an acquisition target or not, was a number of things we needed to do to grow the firm were also those things that were good for the business. In terms of developing long‑term commitments from our clients, generating ongoing annuity streams from those clients, long‑term contracts, and really building a good group of consultants that we could put on any assignment and have them be successful for us.

If as it turns out that is what ultimately drove the value for us in the acquisition as we were acquired by the CGI group out of Montreal Canada in 2007. So a couple of things that were very interesting in that whole process where and no surprise then, previously, or now, is the value of our marquee clients was of utmost interest. So by that, we had a breadth of industries and clients, multitudes that we serviced here in the Pacific Northwest. It really came down to a couple of our large accounts that were most interesting and the history of producing long‑term contracts. So regardless of the types of services, those were things that really drove the value for the company.

We also felt like we had established as one of the go‑to service providers here in the Northwest for the quality of the folks that we had on board. And in a services firm that really only goes back to your ability to retain those employees and frankly the quality of the contracts and the paperwork that you have around that. So again another area that drove value for us was our ability to look at non‑competing, non‑solicitation and those types of mechanical things that came into place for our ability to protect those assets long term.

As I'm looking forward, it's interesting for me to look at, with the interest in the cloud space and software as a service, how are firms really developing their capability to capture or take advantage of that. A couple of firms out there are doing just that, one out of Chicago called Model Metrics, a midsize firm, who has exclusively set up their services around really capturing that cloud revenue. So things like Salesforce.com, Amazon S3 cloud, Google apps and then building on their own framework on top of that, to really package it in a way that takes away some of the mystery and also means that they can execute that in the end.

So I think as everybody is pretty excited about the cloud and trying to figure out what does that mean for the service provider, one of the concerns that I've had is some of those things become pretty plug‑and‑play. It doesn't take rocket science to implement sales force, some might argue with that.

Where it is maturing and evolving is the development frameworks that are built around those tools and being able to extend that not just as a CRM or a sales force automation tool but really as a platform to integrate the whole business.

So I think that's where an interesting development is coming with those firms that are going to be able to capture that as they move forward.

I think another interesting trend that we certainly felt as we went through the process is, the acquisition. We were acquired by a North American firm. We certainly considered and spent time thinking about the reverse, which is the global firm that is acquiring a North American presence. And I think we have seen that here locally with Chinese or Indian firms acquiring local development firms or project management shops that have those capabilities to service local clients and then leverage the offshore capabilities. My guess is that will just continue as those values are there and also as others look to enter the North American market.

Finally, as we look at platform consolidation and others driving their revenue through services, we saw Dell acquiring Perot Systems and that arguably speaks to Dell's ability to now go cross industry and also enter that in a big way, and HP's acquisitions obviously, and IBM doing the same thing.

So I think that's an interesting development as well. One to keep an eye on and I think as we move forward those are going to be a couple of the areas that, at least for me, that I am paying attention to.

Man 1:  Thanks for that Ray, very interesting again. I would like to direct your attention now to our next panelist, David Hayden. And again, an opening question to consider, the woman who last time, someone suggested that you run over to CompUSA and buy a box and then take the box home and install the software on the CD and then look at the software and how cool is that. It's all happening in the browser, right? All the interaction, all the exciting stuff, at least on the consumer side. The question is what does that mean for the enterprise and how is the enterprise taking advantage of that? What are some of the best practices in terms of the dynamics that can be incorporated and used earlier in the presentation you saw RightNow Technologies valuation. They have been an early visionary in doing just that, and it is reflected in their equity value and David Hayden who runs M&A in strategy for RightNow has had a lot to do with that so David welcome.

And we may have...David may be muted. OK, no worries. We are going to move on to the next panelist. We also saw some data on the consumer sector, which is pretty interesting when you look at the valuations there. Especially in the gaming sector, valuations down dramatically.

I think it doesn't tell the whole story because we have seen a lot of the game companies consolidated into a global media companies, but we've also seen fundamentally the gaining experience impacted by the Internet. Both with the availability of casual games served up solely via the Internet, and also it is important to multiplayer in hardcore traditional games.

Our next analyst Jessica Tams was an early visionary in seeing that opportunity. She comes out of game development. She founded the Casual Games Association, which was again an early thought leader in this space with global conferences in Eastern and Western Europe and the US. Welcome Jessica.

Jessica Tams:  Hello, thanks for having me. I have a ton of notes, but I am going to try and get through in five minutes. I started as a programmer in the core gaming space; the gaming space that everybody thinks is dying now. I don't really think that it is. So that is where my heart was and where I started. I moved over to casual and about 2003 which is a long time ago in the grand scheme of things, and we started the CGA in 2005. When we started CGA the industry was about $300 million a year, it's now about $3 billion. At the time when we started my core friends all made fun of me for coming over and making those things that weren't really games. And now they can't take keep them away. So that has been something that has really helped us in realizing our vision of mass marketing was really something that was going to be interesting, that the Internet really was going to revolutionize games and you don't necessarily need to make something bigger or better in order to make it something that consumer want to actually play.

There is a really interesting thing about the casual gaming market is that it appeals to pretty much all demographics. If you have done any research in the casual gaming industry you would have heard that casual games are for old ladies who want to sit down, also retired people. But, the reason why that gets so much press is because it is a demographic that typically not seen on the core gaming side. It is something that was because of the casual gaming phenomenon. So, the other part that's interesting about that is that the demographics don't necessarily follow the games, they follow the monetization method. Which means that the trends will typically purchase their games. Young teenagers typically try to find their games for free, as you may imagine. That's just how they would do, sorry, with their music file. And it is definitely the monetization thing.

Before I go into 2010, because I've told it with honesty here about what the casual gaming industry is like in 2010. I want to quickly go over the main way the casual gaming industry makes money, because it's kind of needed to understand where it's going to be going in the future.

At the very beginning in the industry pretty much everybody made their money on trial to purchase games. Which means that you could play a game for 60 minutes and if you liked it then you could purchase it. It was something that was rather revolutionary because in the core gaming phase, in the stereotypical gaming phase, you couldn't go out and try the game.

If you went to Best Buy, they wouldn't let you try the game and play for it 60 minutes and if you don't like it, just return it. It's not something you could do and practice. If you do have to return it you have to deal with the Best Buy clerk.

So that's the primary message still. The casual games are monetized. Many people are saying that it's dying, but what we've seen is that some companies are still having success at it and then some companies aren't. It's really depending on the individual companies and how they're doing.

The second way is mobile, and this is something that we've heard a lot about, especially since the iPhone and the Android. But there is still a large legacy phone market with all those old mobile out there which makes a lot of money as well.

And then the social gaming revolution which has gotten a lot of press. You might have seen it played on the [xx]. It's been mainly Facebook Although MySpace does have somewhat of a following. And that's new in the US, that it's Facebook and MySpace. It's in eastern Europe and in Russia, and in Europe and in Asia, Most of the social gaming is done on a provider website, so they won't tack on to a social gamer website. So companies have their own websites.

And then web games, the other way. These are mainly moved by hobbyists. They are monetized using ads and licensing. They are not a huge part monetarily of the industry, but they are a huge portion of game players.

So for 2010, we've seen some steady growth. Some companies are up, some companies are down. What we've noticed is that the strong and profitable businesses are OK. And so many of those strong and profitable businesses are actually having the best quarter that they've ever had. Not just beyond the gaming industry. It's the traditional download companies, the traditional trial to purchase companies.

The companies and the sectors of the industries are hugely dependent, realistically. And I say that mildly because a lot of them have gone out of business. The virtual worlds which was a big, strong exciting part of the industry about two years ago. We're very dependent on these things. And most of those companies have had such a hard time that many of them are actually out of business.

And, we're hearing doom and gloom from many companies, but we're seeing very high growths from many other companies. It's generally kind of very steady. There are the movers emerging sector of the industry are the social gaming. They're on Facebook. That's changing. Facebook is changing the way that you can actually put the games up on the website, and many think that they're going to start charging revenues on that.

Nat:  Jessica, we're at the five minute mark.

Jessica:  I talk too much. I'm sorry.

Nat:  No, it's great. We have questions around the state that we go over. We have submit via or respond to them via email. I just want to do a sound check right now. Do we have David Hayden back on? The web meeting but not on the phone. Do we have Reese Jones?

Man 2:  Can you hear me?

Nat:  Yes, thanks. So Reese, I'd like to introduce you next and jump into your presentation. And we're thrilled to have Reese with us. He's an early Internet visionary and founder of multiple successful companies that has achieved successful access like Farralon and Netopia. He's been an active investor. He's been again a thought leader and visionary in really thinking through where the Internet goes from here and how people interact with it. And Reese, I look forward to your comments. Welcome.

Reese Jones:  Thank you. I'll come at this mostly from a technology and user point of view, plus a company point of view. Then I'll talk briefly about telling users the interface between users and the Internet, and Internet and new applications.

Nat:  Reese, we're having trouble hearing you. Is there a way to get closer to the phone or speak up at your end?

Reese:  Yes, how about this?

Nat:  Better.

Reese:  So the main trends is ubiquitous access for users independent of location. That tends to mean more that you're always on, always connected, not just to the Internet and to other people but to stuff, such as sensors and other things that are coming to your house and work. The users, people move and so the location independence means not only being able to access and work from any location, but also while you're moving. And this is most obvious with phones. The interface between the users and the Internet is trending to ubiquitous access from multiple different modes. It's most obvious in phones, where people interact visually, by voice and by physical, such as the phones where you move them to cause effect.

So, just because visual is coming to phones, it does not mean voice will be going away. And new applications for mobile phones, such as location based applications where the phone is used for voice or visual shopping, are becoming more possible now as you have Internet brought to the user wherever they are.

The three screen model that people talk about is typically the phone as one. In many countries there is becoming more phones than they are people, so many people are carrying two or more phones. TVs typically has three per household in the US. And that seems to be increasing. And then computers are increasing as well. So the number of devices on the Internet is soon exceeding the number of people on the Internet.

The plumbing of the Internet is changing as well, both from a technology point of view and a regulatory point of view. Mobile phones are going from wired to wireless and into the billions of units per year. People move, and so their connection to the Internet has to move but the stuff in the Internet doesn't move and can be made faster.

The standards of 3G and 4G are running into problems of FCC spectrum congestion, most noticed in New York and San Francisco area where the existing channels that AT&T and Verizon are running on are becoming congested just like traffic for cars. It should really be a problem is people trying to do more things with mobile devices like phones.

On the physical Internet there's a move from copper towards fiber and wireless. Both AT&T and Verizon have announced moving away or abandoning their copper based network and moving towards fiber and wireless for two reasons: one is performance, the other is to avoid regulations as being determined as a phone company that restricts what they can do.

Cable provides services to homes usually over coaxial copper but is moving to fiber. And the telcos as I mentioned, are abandoning their copper and moving to fiber too, as close to the user as they can get it and then wireless thereafter.

The regulatory thing is burdening both the operators and the technology. Much of the regulation has to do with regulating old technologies. For example, frequency allocations, assuming that radios can't be smart. And with semiconductors, radios can be smart. But the regulation does not allow sharing of networks using smart devices, for example.

And then there are the issues of Internet regulation and censorships. Or copyright, such as Google China problems of this week, or the Comcast net neutrality bit torrents issue, where the regulators are complaining about a cable operator restricting access to certain kinds of applications. This will be an area that will affect business considerably. For example, Google pulling out of China or the FCC suing Comcast.

The final area I will mention is the smart grid and the energy grid is evolving into what's being called a super grid, which is a combination of the power grid and the Internet as one integrated system managed. Where in the US broadband Internet services area being added to smart grids to do real time communications over the power grid at the same time as the power.

In developing countries, when deploying a new power grid, Internet fibers often pulled alongside it, so that both things come to the same place at the same time. And this is an architecture where both electricity and energy will be delivered with Internet services and managed as an integrated system from the service provider. And then from the user point of view, they'll have both at their user side at the same time.

Nat:  Reese. I appreciate your comments. It's pretty intriguing to think about what you're describing. It's really the Internet as an environment we live in rather than log into. And we're excited to see what you cook up next in terms of companies to take advantage of that. I'd like to, just in the interest of time, I'd like to now invite our next speaker, David Hayden, to join us. David, can you go ahead and give us a sound check please?

David Hayden:  Yeah Nat, can you hear me?

Man 1:  I can hear you fine. I already given you a brief introduction but we're excited to hear about how you're thinking about the intersection of social and enterprise.

David:  Well the first trend I'll call out is that technology is expected to just work these days. That failed the test for me. Thanks for the introduction Nat. For those of you who may not know right now we're a cloud based CRM provider focused on large consumer enterprise as a unique market. You know the question I think was around, is the action in the browser? I'd say yes and no, right? Clearly everything is moving to the cloud.

We're embracing the environments that the consumers live in. Someone talked about the gaming industry before. We serve EA and Sony and they want help and support in the game. So we provide that for them.

We're seeing a very sort of diverse set of use cases growing all around the customer experience in particular. We see the market that we serve driving the trends we pay attention to, and the bets we place as it were. From the market we serve perspective, it's large consumer enterprises, Internet services like MySpace, large retailers like Overstock or drugstore.com, big CPG companies like Kodak, Canon and Nikon. Lots of large consumer enterprises. We see that as a unique and distinct market.

From large business to business companies, like a Dell Corning or Airbus, has sales reps they need to enable. And those guys want to enter leads and opportunities while they're at the mini bar. That's a very different sort of record centric view online. Whereas ours is all about knowledge, interaction, workflow, analytics.

So, with that in mind, the trends that we see that we're investing in ‑ I'm not a prognosticator, I'm investing in the trends that are inevitable, that have already started to gain momentum. There are things like social media empowering consumers, right. They're things like customer's expectations rising. Apps just working as I've mentioned. But it also goes to the ease of which they can switch cell phone providers or go to a different website and buy the product there, or get a different camera for very little money.

What we're seeing is all of the conversations that matter are now happening external to the consumer enterprise. Many of the conversations are happening between our customer's customers or the consumers themselves. And the consumer now really owns that relationship. See you almost have to think about CRM upside down if the consumer owns the relationship. And you have to question how much value are you really providing at the point of interaction for those consumers.

So social, as I said, is a big trend for us. We're investing happily in it. Companies really want to integrate social into their business processes and carry their brand and differentiation through the social web. They want to get customers passionate about the brand. And they're not doing that for no reason, right? That's the way you're going to shop enthusiasm to drive sales and support, which is how you're going to win long term against the social trend in particular.

As we see the market, we work hard and diligently to really blend what we perceive to be occurring in the consumer Internet services market and landscape, with the needs of our buyers in the enterprise software market, who really want business results for the service versus just another technology or pop that they just have to sort of figure out how to drive value from.

On the buyers side of things, one of the key trends that we see, is the clouds of course, and it is web services, but at the end of the day, it's just a lot easier to start a new company these days and deliver some very unique and focused applications into a specific market - whether it's at the front of the market or at the back of the market or somewhere in between.

What that really has done is it's raised expectations, both for the buyers but also the consumers of the application. That the technology is going to work and that somebody is going to build a solution specifically for their needs. Now to do that, it's harder than it sounds. Everybody wants to say, "Geez, just put out a platform, let people consume it, some partner will build a specific application that will care for tech end market."

No it doesn't really work that way. If you deliver a platform that's database and record centric, all the apps you build are going to look like record centric applications not communication services, for example. So what this really does is, create a long tail in the market and a lot of opportunity.

I don't think that if my software market is blocked up, by any stretch of the imagination, by the Oracle, SAP, Microsoft of the world. I think 10 years from now, what we'll see is that the applications that are driving revenue for those vendors, and those vendors who are yet to emerge, are drive from technologies that hasn't yet been invented. They're more likely to be invented by young start‑ups who are very, very focused on a specific domain.

It's very difficult to tell what's going to win. We're very diligent about making sure that we're investing ahead of the curve and looking for the smart value for solving hard problems for the consumer enterprise. We believe that will sustain us.

Nat:  Thanks for those comments. And you certainly are. We saw your social acquisition last year and we're pretty excited about where you're going. I'm now going to introduce our final panelist for the day. And basically, as Dougan pointed out earlier, a lot of the deal volume, a lot of the interesting things inM&A are happening in infrastructure. And we hear about Google spending, I’m sorry Cisco spending billions. We hear about a lot of the stuff that happens at the top end. Does that mean that the little guy is frozen out? Does that mean that the smart entrepreneur no longer has an opportunity to solve a problem and make some money?

George Kostiuk is here to tell us, no. In fact he's done this twice and bootstrapped two companies without any outside investment to solve strategic problems initially in networking and the second one in virtualization. And I'm very interested to hear from George about the infrastructure arena, virtualization and the opportunity that he sees there. Welcome George.

George:  Yeah, thanks Matt. Hello and greetings from Toronto, where it is a dreary but mild winter afternoon. Thank you Corum for inviting me to share some of my thoughts on infrastructure trends, and thanks to all who are still listening. After all those speakers, it is hard to say something original, but I will do my best.

Nat:  And George, as you say something original, could you please do it at a higher volume?

George:  OK. I am doing my best.

Nat:  OK. Thank you.

George:  I think it is helpful, when analyzing trends, to take a step back away from the technology itself and look at things from a bigger perspective. I believe that there are two main factors which will shape not just infrastructure trends, but will also profoundly affect the way we will behave in the next decade and beyond. Firstly, this recent economic downturn globally, which took many years to recover from, is something we may never be the same again. This will result in reduced corporate spending at all levels, impacting IT, travel and more. And the overall mantra, which we are going to get sick of hearing, is "doing more with less".

Secondly, and I think even more importantly, the rising cost of energy and growing more concerned about climate change will make everyone's world a lot smaller. One of my favorite reads in recent memory is a book I strongly recommend that everyone picks up and reads. It is by a guy called Jeff Ruben. The book is titled: Why Your World is About to Get a Whole Lot Smaller.

I will just give some numbers from there. In June and July of 2008, we briefly experienced the painful oil prices of 126 bucks a barrel. And then, prices crashed a mere six months later to just $31 a barrel when demand in the global economy bottomed out. Oil prices have more than doubled since then and, in a matter of time, will rise dramatically, much higher than $126 as demand ramps up and we go further down the peak oil curve.

Interestingly enough, if you look at the infrastructure as an industry, then the US infrastructure itself is one of the top five energy consumers. So it is all up to the infrastructure to reduce energy consumption, because it is expensive and it is going to be a limiting factor to growth.

So keeping these two huge factors in mind, it is clear to me that we will see the following trends in infrastructure for some time to come. Trend number one: what some people call unified communications or converged communications, in terms of unifying voice, video, and more into the enterprise network backbone, and, thus, doing more with less.

From an infrastructure side, I see that network cores are converging. If you look at Cisco's network blueprint, it was to have an edge layer, a distribution layer, and then a core. And there was also a parallel fiber channel storage network and, often, a separate video network, and a voice network, and a wireless network, and so.

Now, with increased port densities and increased switch fabric capacity, new capabilities, and applications running on core hardware, these separate networks are all collapsing into one network with advanced security, content access controls, network access control, acceleration, and management.

Now do all this in a green data center and the cost savings, both hard and soft, are further reduced. I came across an interesting quote that went like this: "Green software is about substituting intelligence for resources." And that is what we are going to be seeing a lot of in the future.

Trend number two: cloud computing. I am one who share's Larry Ellison's views on cloud computing. If you want some laughs and haven't seen Larry's rants on cloud computing, go to YouTube and punch in "Larry Ellison Cloud Computing" for a five minute video of Larry mocking the whole cloud computing concept.

Nonetheless, I do think cloud computing will continue to gain momentum, even if it doesn't go mainstream very quickly. In the last year, the number of organizations indicating interest in cloud doubled from 20% to 40%. And a recent survey showed that 30% of those interviewed said they would slow to adopt cloud because the technology was immature. And another 25% said that they were hesitant due to security concerns. To me, cloud computing, stripped of all the hype, is all about converting infrastructure into a service.

Trend number three is tied into the above. If we see that unified communications and cloud computing is really going to put an extra burden on the WAN infrastructure, then I believe there is a lot of opportunities for WAN optimization. And that should be a huge growth area over the next few years.

Trend number four:  virtualization. As virtualization itself has been commoditized and basic virtualization platforms are being given away, the competitive focus is shifting to issues like management and backup. Today, technologies like PDI aren't really gaining momentum since some fairly high costs of implementation that doesn't justify benefits. Desktop virtualization will hopefully evolve to the point where the end user experience is not compromised. And I think implementation costs have to drop before that will happen.

For my last and final trend, the movement of corporate apps onto mobile devices. The enablers behind that are smarter mobile devices and increased network bandwidth, both of which we are seeing a lot of today.

It is a real challenge, however, to control and manage these devices. A killer software product would be a handheld insolent client that would provide security, authentication, remote control capabilities, and acceleration using data compression and so on.

So I will be brief in closing. I would like to share my thoughts about consolidation. Despite the massive amount of consolidation that has already taken place in the industry and how mature the infrastructure industry is, there are still, and perhaps, always will be, opportunities for small players.

From my own experience, large players will always look to acquire smaller companies to fill the capabilities gap in order to remain viable against their competitors. Competitive pressures are such that it will almost always be a buy versus make decision.

Nat:  Thanks very much, George. Very interesting comments. And having watched you control the heat in your cottage in Toronto from an airstrip, I am aware of your expertise in using devices to control distant objects and physical infrastructures. So we look forward to seeing what you come up with next. With that, we are at the end of the presentation. We will be following up on questions via email. And with that, I will hand it back to Mark Reed.

Mark Reed:  Thank you Nat. Thank you to all the panelists and Corum speakers. It was a lot of information and a lot for us to digest. We will not be able to have the Q&A this time. We do have all your questions in the queue; however, and we will respond to those, as Matt said, by email. I do want to mention the Corum conference series that we have. We host a number of timely educational events really focused on software entrepreneurs, and we hold them around the world.

Our Merge Briefing is a very focused 90 minute event that brings software entrepreneurs current information about the M&A marketplace, and it gives them a 30,000 foot view of the M&A process; very focused, very tight.

For a much more in depth look at the M&A process, I would recommend Corum's Selling Up, Selling Out conference. It is a very intensive how‑to session. It gives a full roadmap to prepare for and execute a successful software M&A transaction, from preparing your company at the start to how to go out into market, some of the documentation percent, evaluation process, structuring transactions, negotiations, etc. It is a half day event we conduct around the world maybe 20 times per year or so. They are both well attended and some of the biggest software companies have sent their business development staff to these past events. We do welcome buyers at them, as well.

I would like to offer a complimentary pass to any of our Selling Up and Merge Briefing conferences to all the attendees today. On our website, corumgroup.com, you will find a link to conferences and events which will show you upcoming events like these and the schedules and registration information.

Under "registration form", you can enter a promo code which will cause the registration fees to be waived. The promo code for today is "2010 forecast", all lower case. Or you can contact me or any of the other Corum dealmakers.

And I would like to go back to Bruce Milne for some closing comments.

Bruce Milne:  Thank you Mark. With 12 speakers, we had a lot of ground to cover. And I just want to give a thanks to all the speakers on today. [applause]

 Great job. We hope you have a great 2010. All the statistics that we talked to you about and the detail Dougan went into will be on our website. Get back to us if you have any questions. If you want to talk about your company, your situation, and opportunities in the market today, contact us at www.corumgroup.com. Any of our representatives worldwide will be glad to chat with you, no obligation. And we hope you enjoyed this. Thank you very much for attending.

Matt:  Thank you. I hope you can join us in‑person for a conference, and that concludes Forecast 2010, this year's edition of Corum's annual M&A report.