May 2012 Tech M&A Monthly

May Webinar: Location, Cloud, and Dell

Introduction and Market Overview

Ward Carter

Hello, and thanks for joining us and welcome to Corum’s May 2012 Tech M&A Quarterly.

I’m Ward Carter, chairman of the Corum Group, speaking to you from our headquarters in Seattle, Washington. You are part of a group of hundreds of software and technology executives from over 20 countries who have registered for this event.

Here is our agenda for the next 60 minutes. We’ll start with our global market overview, followed by a special review on market timing and another on location-based technology. We’ll cover valuation and deal updates from our recent cloud M&A conference where Corum presented. Corum’s research department will provide a look at recent transactions and valuations in the major software and related technology sectors that we track.

We’ll follow that with a profile of Dell, the computer vendor that is increasingly becoming a software vendor, and then conclude with our guest speakers. At the end of our session we’ll open the floor to Q&A.

Our list of speakers today includes Corum presenters from around the world. They will be introduced in more detail later. Our special guests today include Carolyn Leighton, founder of Women in Technology Institute to speak about her organization and the value women bring to the tech sector. She will be followed by our seller’s panel, including Marcelo Bengoechea, CEO of Seshday, and Win Sheridan, CEO of Apex Systems. I think you will find their experiences of great interest and value.

With that, I’ll turn the floor over to Corum’s CEO, Bruce Milne.

Bruce Milne

In our global report on news you need to know, we’re going to bypass China and Asia, we’ll have a special report on them next month. Instead we’ll start with Europe, where there has been a lot of news with the changing government.

The Euro: Regional debt has risen to the highest in the currencies history. That’s extraordinary. Later on, record high gas prices, burdening consumers.

The one bright spot continues to be Germany, factory orders are up. Hollande, who was just voted in to lead France, he has vowed to fight austerity, which has been the move in Europe. That means that Merkozy’s pact with France is basically over and then Greek voters have been rebelling. They, too, turned against austerity. That turned them back to the Greek problem, which drove the DOW down in the sharpest move in history last summer. Let’s hope that doesn’t happen again. The Euro dropped to a three-month low after the Greek and French elections.

Moving across the Atlantic, the US is not suffering from a recession, but we’re seeing a bit of cooling in manufacturing. Both bearish and bullish forecasters agree on a strong dollar. Consumer comfort in the US has declined to the lowest level in two months. Jobless claims in the US have declined more than forecast. Service slowdown signals that US growth may be cooling. Employers in the US added fewer jobs in April than was forecast. So the caution flags are out in the US. We’re still growing at more than 2%, but that’s down from the 3% we were seeing a couple of quarters ago.

Unemployment dropped, but fewer Americans are working. This is one of the troubling signs that is going to affect the election. A lot of people are just out of the workforce. The experts are saying no repeating slowdown was seen by the US regarding banks to housing. We fixed those problems fundamentally. The S&P 500 capped the worst week in 2012 a couple of weeks ago, basically on the disappointing jobs data. Then, yesterday, the DOW fell six days in a row, in the longest slump since August, again thanks to Greece.

In finance, real estate, and commodities, there is actually some good news. Home ownership rate in the US felt to the lowest since 1997. We also had a record low rate for loans. Of course you have to get the loans, but slowly but surely we’re starting to see some of the banks ease up on their credit. Pimco’s Bear Kiesel says that it’s time to start buying. Things have turned around. Maybe you’re seeing this in your area. We’re seeing that some of those houses that have been for sale are now pending or sold in our area. Oil slumped to a three-month low, which is great. Hopefully that’ll keep prices low for travel this summer. This just in, home prices have risen in half of US cities as the market stabilizes. We’re through the bottom and on our way back up.

Technology is roaring along though. Worldwide chip sales may grow at a faster pace according to the IDC. Barnes & Noble surged after the Microsoft investment. We’ll have a lot more on that later on. Groupon, the deal that keeps getting cheaper. What they’re saying now is that Groupon’s model should have been proven a lot more before they went public. Amazon’s Kindle Fire sales slump against Apple’s boost in the tablet market.

Now we get to the tech wars, the patent wars. Google is said to face a fine by the US over Apple’s Safari breach. A jury determined that Google’s Android infringed on Oracle’s Java. Google is under fire. We’re going to have a special update next month on the patent wars, they’re all starting to come to a head.

That’s it for the global report. Now I’ll turn things over to Nat Burgess, Corum’s President.

Nat Burgess

Thanks for the update, Bruce. I have just returned from Interop down in Las Vegas, where I had a chance to meet with a lot of CEOs and analysts and really think more about where the market is going, especially about market timing, which is what I’m going to discuss today. The slide that was just up was a screen capture from a CNBC interview that I did back in January, with some thinking from our research team here, I predicted that Microsoft would invest in Barnes & Noble, and guess what? It happened. Because I’m moderating this section, I’m not going to bring up the other three predictions I made up in that interview. You should pay attention to 25% of what I say today.

The M&A Market Cycle

Seriously, the question of market cycles comes up in almost every conversation that I have with CEOs of emerging and growing companies, because there is this concern that if you sell too early, you’ll leave money on the table, but if you wait too long, you will have no options but to reinvent yourself and ride out another cycle. I had a number of those conversations down in Las Vegas and it got me thinking about some of the things that we can probably all agree on in terms of market timing.

First is the certainty of cycles. The tech M&A market is cyclical. It’s a little hard to read this chart, but if we look at the cycles through the mid-90s, the 2000s, the present, what we see is that every three or four years the pendulum swings. Our speakers who are coming up later have been through this cycle with multiple companies and they are very familiar with this.

So that’s one factor. Ignoring all the short term cacophony of analysts, we can agree that the market moves in cycles.

The second thing we can be sure of is that there is a lot of money flooding in right now. Elon and his team will have more to say about this soon. The private equity guys raised a lot of money in 2006-7 and then the market crashed and they stopped investing. The clock is ticking on those dollars, they have to put them to work. Also, the big IPOs have renewed faith in the VC community. Their ten-year returns went negative two years ago, but now people are making some series money on these IPOs. The VC money is washing into the market.

What does that mean for you as a CEO of an emerging tech company? It means that this new money is going to fund your competitors, building products, building distribution or that it will fund them to acquire you because you have a head start and maybe you’re already where they need to go, so that’s something to think about.

Finally, Bruce is a little more comfortable talking about politics in this forum, but if you think I’m going to talk about that in this forum, you’re crazy. I will make a few comments. The European debt crisis was not solved through austerity, in fact we never even really got to try austerity. Can it be solved through a return to socialism? There are new left governments in France, Greece, the Netherlands, probably next year in Germany, it’ll be very interesting to see what happens there. Also, we’re working on multiple deals in Europe right now, and we see a general anti-capitalism sentiment that is growing. Finally, long-term capital gains tax will rise in the US, it’s only a matter of when.

Alright, so those are some of the trends, and again if you’re thinking about M&A and timing, bear those in mind. The other one is, the market is really fun right now. There is so much excitement around the changes that we are seeing. People are talking about the post-PC era, we’re all sitting here at a conference table with PCs in front of us, but in the next couple of years they’re going to be joined by about 85 billion “connective devices” and that changes everything. Video is going to quadruple overall internet traffic in the next couple of years, the consumerization of IT, bring your own devices, social, the agile, virtual, connected data center. This is not just about changes in the way that users consume technology, it is hitting the data center. I heard the CTO of Zynga speak the other day down at Interop. He said that last year they added more data to their database than if you took the entire Netflix movie library in HD time 10! And they consumed enough power in their data centers to deploy 166 international space stations! There is a very short line now between the client and the data center.

Have you created a technology or business that will help the big guys stay in front of these trends? Let’s remember what Baron Rothchild said, he was the godfather of one of the largest European fortunes. He said, “I made my fortune by selling too early.”

The GEO Hotspot

We’re going to get into a specific market and get a lot more granular here with our chairman Ward Carter talking about location.

Ward Carter

Thanks, Nat. Everything is going GEO, and we share the optimism the M&A markets have recently demonstrated for technologies variously named as GIS, GPS, LBS. The concept revolves around the use of data related to location, often delivering location specific content and services. Location is especially relevant to people on the move, so the fact that millions of us are walking the earth with our GPS and GSM enabled smartphones greatly expands the range of applications we should find useful.

If we know your location, we can help you navigate , or find the nearest ATM , or offer services, or advertising or coupons for nearby businesses, or even help you find a nearby friend or your car in the parking lot. Or guide and track equipment where you work, survey a construction site or a crime scene, engage in a geocoded game or take geocoded pictures. This technology touches many sectors in the software space. If you don’t see yours here, you soon may, as there is a wave of consolidation in process impacting most market sectors.

Some notable deals include:

• Intergraph, with their 3D modeling, visualization and GIS mapping capabilities.

• Traffic Masters, an asset tracking deal

• Inrix and IT IS, providing GPS based traffic information to auto industry, transportation and government agencies

• Dassault, broadening their vertical presence in the global mining industry

• GeoEye and Digital Global, a recently announced merger of two satellite imaging giants – the deal is apparently falling apart, but indicative of the activity taking place as major players peek over the ledge of consolidation.

Recent deals further support this consolidation move, deals in 3D modeling, mining,
cargo vehicle tracking, fleet management and tracking, locating friends and businesses, GIS mapping, and a Foursquare-like solution for Facebook.

Corum has also enjoyed some success in this space, with recent Corum clients including Surpac Minex in the mining industry; Wenco in asset tracking; and MicroSurvey, with advanced surveying and mapping solutions in the construction and forensics space.

So, what’s coming our way? We’ll see the further impact of built in GPS as nearly every device becomes GPS capable, while assisted GPS greatly expands the range of potential applications, as we move outside the range of GPS satellites, and augment GPS with other technologies to expand its reach and its utility.

New advertising models are possible with refined location data, advertising based not just on where you are, but where you’ve been, where you haven’t been, and where you might be going.

Location awareness becomes even more multidimensional, three dimensional, with floors and building locations, not just grounded positions, and pathways through time, not just where you are now.

All of these devices are pushing back more data, big data, geospatial data including maps, imagery, derived data, publically crowd-sourced data, tagged data, metadata, and others, creating further opportunities for new applications to interpret, manage, and monetize this flow of data.

There are also applications we have not even thought of yet, as the really compelling applications may be those of machine to machine communications as the “internet of things” finds itself and becomes location aware at levels we cannot even imagine. But some have the vision, as we are seeing a quickening of deals in the M&A space, forewarning of the upcoming wave. This is a space that is really exciting, and one growing in leaps and bounds, with tremendous opportunities as both traditional and new players seek to geo-enable their application suites.

At Corum we have witnessed the dynamics of a market wave time and again, demonstrating again the importance of timing as markets ebb and flow. We really like what we see in this space, and believe that strong opportunities exist for buyers to expand their holdings while sellers leverage the scale and distribution of these active acquirers.

Please stay tuned for more coverage as we attend an upcoming World Financial Symposium’s market spotlight entitled location-based M&A.

Back to you, Nat.

Nat Burgess

Thanks, Ward. In case anyone is wondering about the kind of numbers that we are talking about here, services related to location data are currently in the hundreds of billions of dollars and as these devices start talking to each other, as we have an internet of things and they are location aware, there is a huge opportunity for disruption, for innovation, and for emerging companies to really take advantage of this trend. Definitely log in for the market spotlight with further data on this area.

The Three Cloud Offerings

Now we’re going to zoom from the ground up into the cloud with our managing director for Europe, Miro Parizek. Miro recently chaired a session on cloud computing M&A and he has taken some highlights from that session and given them to us today. Miro?

Miro Parizek

Hi, everyone and good evening from Germany. I recently had the pleasure of chairing a World Financial Symposium event in Europe on M&A, spotlighting the Cloud.

We discussed the three groups of offerings – SaaS, Infrastructure as a Service, and Platform as a Service. We identified Amazon and IBM as the dominant players when it comes to the provisioning of infrastructure services and Google, Microsoft and Salesforce as leaders in the Platform as a Service segment. Of course, Salesforce.com is a pioneer and clearly a leader in the SaaS space.

With Oracle pushing them all hard, spending billions in a matter of months making a big entry into the SaaS market. IBM is also keeping everyone on their toes. And of course, SAP, not wanting to miss out; shelling out nearly 12 times revenues for SuccessFactors. That one topping the scales, but the other valuations were not shabby either at the roughly 6x range.

By the way, many of these major firms were live as our guests on our annual industry leaders panel. If you didn’t get a copy of that report, please let us know at info@corumgroup.com and we’ll mail you one.

So, what’s driving the activity and the valuations? Well it’s the growth; in a market forecasted to expand 130% during the next three years. And the PaaS segment is forecast to grow a whopping 200% over the same period. I’m sure we’ll be seeing plenty of deal activity in both the Platform and Infrastructure as a Service segments the rest of this year, so stay tuned.

And this phenomenal growth is not only driving the headline grabbing mega-deals, but also in the mid-market space. For instance in the collaboration market we’ve seen VMware stepping in to the applications space and expanding their portfolio beyond infrastructure for the cloud. Others such as Jive, GlamMedia, and Citrix also vying to either define or expand their position in the market.

The point is, everyone is jockeying for strategic position, which is going to make for great Tech M&A theater in the next couple of years. Of course Corum is right in the thick of it with some recent transactions.

We recently advise:

• Instantiations, a provider of web based development platform, on its sale to Google;
• Nefsis, a video collaboration vendor, on its transaction with Brother;
• 360 Scheduling, who we sold to IFS, as part of their transition strategy to cloud services; and
• Edvantage, an e-Learning SaaS vendor, to Lumesse, plugging a gap in the largest European talent management vendor’s product suite

We will be working with World Financial Symposiums again to do an American version of Market Spotlight, taking a detailed look at M&A and its implications for the cloud industry. Watch out for it in the coming quarter. We look forward to seeing you online again then.

Thank you, until next time.

Nat Burgess

Thanks, Miro. Now, we’re going to switch over to our most anticipated monthly event, which is Elon Gasper and his research group updating us on the major events and trends on the M&A landscape.

Over to you, Elon.

Corum Index and Research Report

Elon Gasper

Thanks, Nat. I’m joined by our senior analyst Alina Soltys to present the Corum Research Team’s take on the Tech M&A events of the last month and analysis of what they mean to software execs, entrepreneurs and investors. We’ll begin with the public markets.

Which, well, we knew they couldn’t go up forever, and really from a technical standpoint it’s not bad to see things take a healthy breather for a bit of consolidation. Even with pullback, the US markets are still up this year, and notwithstanding the apparently increased chance of a more disorderly phase in the EU financial crisis, we maintain our January prediction of 2012 as a banner year for M&A, since the US economy continues to recover, debt is cheap, and tech innovation is in a strong ascendant cycle. Moreover, corporations with record cash are chasing deals alongside newly public international buyers and PE firms. Alina, how about the Corum Index?

Alina Soltys

All parts of the Corum Index took a step back in April, again, not surprising after the historic run up during Q1. But most were relatively small differences, with just two items showing substantial change, one being the megadeals count. Although there weren’t as many, all four of them deserve further detail, starting with Vodafone buying C&W. Elon?

Elon Gasper

Consolidation never ends in the Telecom Space, as the world’s largest wireless company picked up the old Cable and Wireless, which laid the first line across the Atlantic pond in 1866. More recently, C&W had started offering backbone services for setting up cloud infrastructure as well as network performance tools: those will now strengthen the Vodafone’s Enterprise offering.

And while we’re talking telephony consolidation, this week the world’s richest man, Carlos Slim, offered to put a few billion more into Dutch telecom KPN. Clearly this latest round of financial troubles has some European assets displaying compelling value. But that’s next month’s report. Alina, back to April and that patent megadeal.

Alina Soltys

Analysts were surprised with the $1.1B that Microsoft paid for the AOL patent deal, ending up MUCH higher than the $300M originally estimated, causing AOL stock to jump 36% on the positive announcement. During the process, AOL’s CEO touted the patents as “Beachfront Property in the Hamptons”. Microsoft didn’t even get to enjoy the view before quickly turning around and selling half to Facebook as FB continues to build up its defenses.

Elon Gasper

Speaking of Facebook - and who isn’t - following up on last month’s call out, our third April megadeal is the amazing case of tiny 13 person 2-year old San Francisco start-up Instagram bought for a billion bucks - $300M in cash plus $700M in FB stock. This wild deal for free software that lets you filter and share mobile photos on The Social Network seemed to have found the limit of leverage from social media. Or has it? We’ll see, but it does emphasize the importance of timing, particularly as it’s now set off a stampede to fund the “Instagram of Video,” in a sort of 21st California gold rush featuring Valley VCs, angel investors including Steve Jobs’ widow and Hollywood stars like Leonardo DiCaprio and Ashton Kutcher -- who’ll be playing Steve Jobs in an upcoming movie. Cynics might wonder if Zuckerberg’s cagey enough to have overpaid for Instagram just to juice up the sector right before his IPO.

Back to you, Alina, for the last billion dollar transaction.

Alina Soltys

That’d be April’s cloud megadeal where Dell acquired Wyse Technology. Dell talked up the tech reasons for the purchase, saying it added more to its desktop virtualization line, but clearly the massive user base mattered a lot too, plus some key partnerships and the Wyse third-party channel. We have a special report on Dell coming up from our own Mark Johnson, who’ll put it more in context by exploring how Dell’s other deals match up, too.

Closing out the Corum Index, our Private Equity value marker dropped way down for the month, but this indicator is quite choppy on a monthly basis anyway, plus PE’s can choose how much to reveal or not, unlike in a public market index such as the four we’ll review next. Elon, Consumer comes first.

Elon Gasper

Thanks, Alina.

As it should, given that Corum predicted April’s big surprise deal in this segment right here in the January Tech M&A Monthly plus in Nat Burgess’ national television appearance on CNBC. Microsoft buys into Barnes and Noble by committing more than $600 million dollars and patent licenses for starters, half for equity in a Nook and campus bookstores spinout and the rest for some initial licensing and projects. This will let Redmond break through on several fronts and force counterplays from its affected competitors. Those include:

• Google because the deal threatens Android’s Nook franchise;
• Amazon in the e-reader arena where Kindle will need a Nook app on Windows and, we still believe like we did in January, some Windows Nooks to come;
• Apple, not just against iPad as an e-reader, but in marketing and distribution because Microsoft now owns part of over 6,000 college campus retail stores; and
• Other traditional retail outlets are threatened as well: for instance, Walmart and its WalMartLabs venture into e-commerce.

We expect Microsoft to spend billions following up this initial deal with other pushes in each of those directions. As with other broad strategic collisions and corporate brawls, a variety of opportunities will quickly open for small companies to temporarily command higher valuations because the market position they occupied has suddenly become high ground for forces marching into battle. M&A Timing again: amid violent change, move quickly since those positions are ephemeral.

Alina, though the Horizontal Applications market sagged last month, you found one transaction in the SMB marketplace that managed to reap rewards beyond the rest. Tell us about it.

Alina Soltys

This is one of the higher valued deals we’ve mentioned lately: Intuit, a publicly traded company paid almost 3x its own valuation multiple to secure Demandforce at 11.4x Revenues. Intuit’s acquisition strategy has been to focus on companies that have proven themselves with a couple of years of track record in the marketplace. Although they do look at startups from time to time, in order to strengthen that business case they often choose to partner first, rather than acquire.

In the SMB ecosystem, it’s fairly difficult to break through to the $100m+ level. DemandForce has been one of the few to successfully figure out the SMB sector by delivering real value owners can quantify, thus driving revenue growth for itself.

Demandforce has a SaaS solution that provides email, mobile, and social tools to automate marketing and customer communications while building loyalty and reputation with the online community.

Demandforce more than doubled their revenues in 2011 which also helped drive the healthy multiple, but because this is part of THEIR SMB strategy, they chose to keep the big picture in mind, albeit paying a high price. Intuit continues to focus on deriving value for its SMB customers through this kind of acquisition, where there are upselling opportunities and the ability to increase the revenue per customer over time.

Elon, what can you tell us about the next sector?

Elon Gasper

Generally the Vertical Market Applications sector saw a slight drop in valuations, but segments of this group, including those featuring geolocation, continued to generate liquidity at attractive levels.

Ward mentioned our example, Canada’s GemCom, which makes software to design and operate the world’s thousands of mines and other excavation projects. Last month it saw the French 3D design titan Dassault step up for $360M cash, a strong 4x FY11 revenue and a million per employee. Corum knows Gemcom well, having sold them our Australian client Surpac Minex a few years back. So now in turn Gemcom will become part of the second largest software company in Europe as Dassault breaks ground in the mining market; Gemcom management will be tasked with expanding the subsidiary under a new name, GeoVia.

Consider the possibility your company’s buyer may get bought, too, like this one; my first company’s did, then quickly went through 3 more levels, one each year. Be sure your deal structure supports that scenario, for instance in earnouts anticipating ways to clarify or challenge their measure if your corporation and the buyers are both dissolved in an asset purchase, as appears will be the case with GemCom.

Alina, I see the last sector we’ll cover today, Internet, dropped like the others, right?

Alina Soltys

True, Elon, so moving onto our next deal, not a lot was disclosed about LivingSocial acquiring Onosys. They are an e-commerce platform that allows restaurants to set up online and mobile food ordering systems on their websites.

If you like your dressing on the side and a slice of lemon with your Caesar salad but dread the moment when the order comes out wrong, this ordering platform developed by Onosys allows the smallest of details and requests to be noted. They cater to such customers as Panera Bread, Papa Johns and Papa Murphys.

This online ordering space internationally is drawing a lot more attention than in the US. The company causing the most commotion is Just Eat, a UK based company with a very large presence in Europe, serving over 25,000 restaurants and an estimated 250,000 customers a day. Just Eat reportedly drives over $750M in orders annually for its customers, pocketing an 11% fee on each order.

Just Eat raised $64M last week, bringing its total funding over the last 3 years to a whopping $129M. It will be using those added funds to drive further international growth and acquisitions. This slide shows just a sampling of their acquisitions: In the last 18 months they have picked up 9 companies, targeting add-ons in newer markets like France as well as a delivery service in the UK to fulfill the orders that were made online.

Just Eat’s rival is Delivery Hero, a hot Berlin startup that raised 25M Euro in April and is expanding heavily through, you guessed it, acquisitions!

The conclusion we can draw here is there’s two paths for high tech CEOs. 1: Raise an enormous amount of funds to consolidate all of the small startups just starting to gain traction or 2: Jump into the arms of a Delivery Hero, receive compensation for your startup and move on to fresh ideas.

Elon Gasper

So that’s eat up or sell up and get back in the kitchen, that’s the menu for tech M&A today. And, with that, Nat, we’ve had our portion and will pass the plate back to you now.

Nat Burgess

Thanks, Elon. Always interesting to hear what your perspective on the market is.

Dell Acquisition Report

Next up, we’re going to be looking at Dell. We’re going to look at them in even greater detail next month. Here is a company that is bridging that divide we talked about earlier, that of data centers and devices.

So, let’s go to Mark Johnson.

Mark Johnson

Thanks, this is Mark. I’m going to be discussing Dell and how it has adapted its business over the last couple of years.

Dell has consistently been a top 10 buyer of tech firms; however we’re currently witnessing a shift in its acquisition strategy which says a great deal about how Dell sees its future. About one month ago, Dell announced its latest acquisition of Wyse Technology, a provider of cloud computing and secure desktop virtualization technologies – just one of a string of moves by Dell to move beyond its core hardware business into software and services – a familiar theme from the big hardware vendors, which we have been observing since IBM began its shift almost 10 years ago. Like many of its competitors, Dell has been watching its traditional PC sales drop, whereas it is seeing an increase over 20% for its enterprise businesses.

Dell began its migration to software and services back in 2009 when it hired David Johnson from IBM and appointed him VP of Corporate Development to lead its aggressive new acquisitions strategy. Shortly after Johnson joined, it acquired Perot Systems for $3.9B.

Dell has been especially focused on building assets to develop its businesses in the cloud, Infrastructure as a Service, and in security. Dell has made 13 acquisitions in the past 24 months; 12 of them into straight software companies. It’s also interesting to see that Dell does not typically buy too far from home, all of its deals being US companies, plus one Canadian firm. I’ll discuss just a few examples:

RNA Networks, acquired in Jun ’11: RNA is a small 20 employee company from Portland, OR, founded in ’06, which develops memory virtualization technology. This acquisition fits perfectly with Dell’s datacenter optimization build out, as RNA is directly focused on hardware optimization through Virtual Machine partitioning and management, competing with the bigger players such as VMware, Microsoft, and Red Hat.

Force10 Networks, acquired in July ’11: Provides intelligent gigabit switches and routers for use in data centers for enterprises, and telecommunications service providers. Force10 solutions provide enterprise performance and resiliency while reducing overall total cost of ownership, simplifying network deployment, and supporting open, standards-based systems and management solutions.

App Assure, acquired in Feb ’12: $225M at 11x revenue, App Assure provides data backup, recovery and replication software for use in physical, virtual and cloud computing environments for businesses. This fills one very important gap for Dell, its lack of own backup and recovery software.

SonicWall, acquired in Mar ’12: Provides unified threat management appliances and software for businesses and government agencies. SonicWall systems provide features for firewall, anti-spam, anti-malware, endpoint security, VPN, and data backup and recovery – an absolutely perfect fit with Wyse Technologies. Dell is building a strategic software portfolio to address the needs of its customers with key assets in the fast-growing and highly profitable IT security solutions business.

Finally, in addition to the story these acquisitions clearly tell about Dell’s strategic path, in Feb of this year it established a new software group and hired ex-Computer Associates CEO John Swainson to lead the business unit. The newly-formed business unit will build on Dell's software capabilities and "provide greater innovation and organizational support to create a more competitive position in delivering end-to-end IT solutions to customers", the company said.

Like many of the top tech firms, Dell is sitting on a pile of cash at $14B, even after all of these recent deals. I’m quite certain we’re going to see a few more deals in the coming year in the software space further building out its strategy in this direction.

Thank you very much, that’s all from me.

Nat Burgess

Thanks, Mark.

Women in Technology

It is now my pleasure to introduce the first of our outside speakers. Carolyn Leighton has a background that will look somewhat familiar to a lot of you. She has been successful in the tech industry dating back to the ‘80s. She is associated with Stanford University. She has had four startups and successful exits. In addition to those achievements, she also happens to have been named one of the top 100 women in computing, twice, in 1997 and in 2000. In addition to all of her other activities, she has founded an organization called WITI (Women in Technology International), and she’s here today to tell us about that organization. Carolyn?

Carolyn Leighton

Thank you, it’s a pleasure to be here today. I wanted to share some personal insights about WITI and the business of WITI because, when I started this organization in 1989, I ran a research company and my clients were technology and aerospace companies. My model for WITI was Hewlett-Packard and the labs were developing products based on a very unique model, from a group of people who were so diverse in their backgrounds and ability to look at a product. One might have been a teacher, another a biologist, a sales person, a physicist, etc. Back then HP believed, as I do today, that the more diverse eyes you can use on your team to look at every aspect of your business, whether it is a product, the opportunities, innovations, what have you, the more likely you are to succeed. That is what WITI is about.

When I started WITI, I felt that there was a huge opportunity to advance women by using business strategy, partnership, and collaboration, and bringing together a group of women from all over the world who were tech savvy and professional, and connecting them to look at what kind of business and technology might be available given the fact that we are a group of women who tend to look at things quite differently than companies often do, and the men we work with.

It’s not that we as a group feel that we are smarter or better, but we know that we have different eyes and I’m emphasizing this because I believe that a huge market opportunity in business continues to be missed with the lack of understanding of the value a group of smart women can bring to your organization at every level. They will look at situations so differently and I believe they will help you create new ideas, new innovations, and a market that is crying out for solutions.

WITI is a global organization, we are the leader in professional women’s organizations. We focus on helping develop young women interested in technology, we pull together women from all parts of the world to collaborate and partner on business solutions in technology. We do everything possible to use the WITI machine to develop and promote these brilliant, talented women who are often anonymous outside of their organizations.

Nat Burgess

Thanks so much for that introduction, Carolyn. We actually had a question come in from the audience that we’re going to get to in the Q&A. Thanks for that overview. I would encourage anyone who is interested in finding out more to go to witi.com.

Seller’s Panel and Q&A

Now I’d like to introduce our next speaker who is an entrepreneur who learned the ropes in a larger company and then started his own and was recently acquired, Marcelo Bengoechea.

Marcelo Bengoechea

This is Marcelo, founder of Seshday.com. I wish I had some really incredible stories to tell you, but that is not the case. Seshday was a small startup that had its struggles in the beginning, stabilized in its second year, and after that it became a good target for bigger companies in this space, in this case Left Lane Sports, to come along and take a look at us with serious interest of merging, acquiring, or otherwise getting stronger together.

We were very receptive to the idea, as a matter of fact, we approached them with the idea of merging. They were very receptive, they recognized that what we had done with a small budget could be exponentially grown into a huge business with the right support and funding behind it. The process was actually pretty fast, maybe around 45 days from our initial meeting to the signing of the closing documents. I attribute that to the parties being very interested and having a common goal. When you have that kind of combination, negotiations are made simple and proceed quickly.

For all of you who are in the process of being acquired or looking for an acquisition or an exit to your business, the only advice that I really have is to be yourself, be passionate about what you are doing, do great work, and great things will happen to you. It’s just a matter of time. Don’t quit. Believe me, there were many times that I thought I was done, that I would close the door and move on, but with the support of my friends and family, we realized that the longer we were able to stay open, the better the chances of something good happening to us were.

And that is specifically what happened. We were able to ride out the first year and the second year. I’m not saying it was easy, it was very hard, but we made it, and now in retrospect it was a huge learning experience that positioned the company and myself to tackle the bigger challenges ahead. In my case, I’m continuing with Seshday, under the big umbrella of Left Lane Sports, and I really look forward to the future.

So, stay focused, stay on course, and enjoy the journey.

Nat Burgess

Inspiring advice for all of us.

Our final guest for the day will be presented in a Q&A-style session with a very successful CEO who recently exited at a very high value, along with our own senior VP Jon Scott. I want to welcome Win Sheridan, CEO of Apex Systems, and hand things over to Jon.

Jon Scott

Yeah, thanks Nat, I appreciate it. I am really pleased to have Win Sheridan, the founder and CEO of Apex Systems join us today for a few minutes. Apex was founded in 1995 and is an IT staffing and workforce solutions firm specializing in IT professionals. These are contract, contract-to-hire, and direct placement. Apex also offers other staffing solutions for other professional services and workforce needs. They serve the Fortune 500 market and emerging companies across a wide range of industries including financial services, government, communications, technology, among others.

On March 20 of this year, Win’s company announced a definitive agreement to be acquired by On Assignment, a leading publicly-traded staffing firm specializing in information technology, life sciences, and healthcare. This is really a milestone event for Apex. Together the companies will generate over $1.3B in revenue this year and be the largest publicly traded IT staffing firm in the US.

Win, thanks very much for joining us today.

Win Sheridan

Thanks a lot, Jon.

Jon Scott

Tell me, what got you thinking about an exit? You guys were founded 16 years ago, so you’d be going along on your own for quite some time.

Win Sheridan

I think we always believed in the idea that began with an end in mind. On one side we were thinking about it that way, on another, we never had a for sale sign out in the yard. There were always people approaching us and through various introductions, we would always listen. We always wanted to learn. We heard a lot about what we didn’t want to do, companies we didn’t want to be with, that we didn’t think we’d fit with, and On Assignment came along and they were a great fit. It has worked out extremely well so far. We close next Tuesday.

Jon Scott

That’s great. Now, let me ask you, did you have a strategic partnership or any relationship with On Assignment prior to these discussions?

Win Sheridan

About two years ago they were very interested in buying us out. We were at the table, but it just wasn’t the right timing. The debt markets weren’t right. As I think we’ll discuss, we’ve been a very large part of the company and we didn’t want to put it in harm’s way, or risk their company, or the combined company that it would become. It wasn’t the right time, but the chemistry was there, between the two companies and our management teams, so we knew something was there and we kept in touch. It definitely wasn’t a shotgun wedding, it was more of a courtship, if you will.

Jon Scott

We often see that, where discussions have occurred in the past or there has been some sort of strategic relationship so that you get to know each other over a period of time. This is truly a merger of equals, because actually Apex is larger than On Assignment from a revenue perspective, isn’t it?

Win Sheridan

That’s correct, Jon, we did around $705M in revenue last year, they did just under $600M last year, so we’ll be 55% of the revenue and EBITDA. But we’re excited about it. They are a quality company, they just came out with first quarter earnings, this is public information, I’m allowed to tell you this, they grew 29% first quarter year over year, and their IT arm, which is called Oxford, grew 31%. These are two companies that are executing extremely well and we imagine that we’ll do it even better together.

Jon Scott

We spoke a couple of weeks back, you mentioned that this allowed you the benefit of going public without the hassle. What did you really mean by that?

Win Sheridan

Like I said, we began with the end in mind and we were always thinking about what our strategic alternatives were. Number one was status quo, staying private. Number two was to be acquired at some point in a strategic acquisition and we’ve talked to the PE firms before. We also considered doing an IPO on our own. Just in our analysis, and I’m sure many people on this call know about going public, it’s a very difficult thing to do. It’s a timely, costly thing to do. You have to build your reputation from the ground up. This way we’re going into a company where we will be 55% of the revenue, and you have Peter Demaris, the CEO of On Assignment, and he has a great reputation on the street, so we’re just going to add to what they were already doing as a company. That’s what I meant when I said that.

Jon Scott

That makes sense. Now, any reticence about selling your baby? Being both the founder and the CEO, you must have had a couple of critical goals in mind. You think you could share on that?

Win Sheridan

No question, it was a tough decision. That was because of all the people that are here. There were larger companies that showed interest in buying us out at one point, and we just weren’t interested in that. We’d be a small spoke in their multi-billion dollar wheel. There would be a lot of overlap, a lot of channel conflict, this merger with On Assignment fit like a glove. There is no channel conflict, there aren’t going to be any layoffs at our company. While they do have an IT staffing arm, we don’t compete against each other, they have a different niche of the industry and we think it will just be ideally complimentary.

What really put it over the top was this was never about comparing value in merging with various companies, the question was do we stay private or do we go with On Assignment? What pushed it over the top was that it’ll still be Apex, we’ll just be a division of On Assignment, no layoffs, no compensation changes, anything we do at Apex will still be in place. In addition to that, our top performers will get restricted stock units in a combined company and in addition to that, every employee, whether someone out in the field or a billing clerk, they can also participate in a stock purchase plan. What it really came down to was “is this a better deal than what we had?” What we had was extremely nice. So that was a tough decision.

A lot of nights I would wake up at 3 a.m. and write out pages of notes. I wanted to find a fault in the deal and at the end of the day I couldn’t find one that really mattered. What really mattered was taking care of the people who helped us build a company.

Jon Scott

That’s great. We’re running out of time here, Win. I really appreciate you walking through this process with us.

Nat, let me hand things back over to you.

Nat Burgess

Thanks, Jon and Win.

Now we’ll turn things over to Ward.

Ward Carter

We have a couple of questions from the audience. One has to do with what multiples GIS or location companies are selling for. Certainly valuation is always a complex question with many facets, but we recently did some work in an engagement we were involved in and we pulled up a number of comparable transactions. We need to make sure these are relevant to your particular situation, but in this case, we had about 10 comparables over the last 12 months. The deal multiples, based on revenue, ranged from 2.0x up to about 5.5x. The median multiple was about 3.4x, so you can see those are pretty healthy. EBITDA ranged from 10.4x to more than 25x. It’s a very healthy sector, with lots of activity and getting a lot of attention. We’re seeing a number of our clients looking to take advantage of this market.

We had a question for Carolyn.

Alina Soltys

Yes, Carolyn, we had a question come in from the audience. Can you give us an example of some specific things that WITI is doing to create more opportunities for women in technology?

Carolyn Leighton

Thanks for asking! We have partnered with an organization called EmpowerHer.org, which focuses on taking young women from disadvantaged homes and teaching them some very basic skills and entrepreneurship and money management skills to make them more employable and more successful in starting their own businesses. They wanted to add more of a technology dimension to their training, which fit with our goals as well.

Ward Carter

We’re right on the hour, so that wraps it up. I’d like to thank all of the speakers, especially our guests and thank you to all the attendees for joining us. Hopefully you can join us for an upcoming conference.