October 2012 Tech M&A Monthly

October Tech M&A Monthly Q3 Overview

Introduction and Top Ten

Bruce Milne

Welcome to the Q3 Tech Global Tech M&A Webcast. We welcome executives from 36 countries today, this is going out across the planet. I’m Bruce Milne, your moderator. We have a lot to cover, so I’ll get right into the agenda, we have 10 reasons Tech M&A is strong and it’s as strong as it’s ever been. This could be the best year since the dot com period. We have a special market spotlight report on enterprise mobility, a special report on software-defined networking, SDN, the Corum research report, covering all 26 sectors, you don’t want to miss that today, and our special guest, Rohyt Belani, will be on with us later.

Let’s go right away to the 10 reasons Tech M&A is strong. Despite the slow down in Asia and continued financial crisis in Europe, the market is strong.

 

 

1. The DOW is at 13,000+, within 5% of its top, and that’s good news for M&A, people are confident. 
2. We see extraordinary change. We’re in an era of disruptive changes, with tablets, media, social, apps stores, cloud computing…
3. We have extraordinary record levels of cash. Strategic and PE firms have almost doubled their holdings in the last two to three years. Strategic buyers now have in excess of $350 billion in cash, to use for acquisitions. PE just topped one trillion dollars last quarter and they’re putting it to use. 
4. Debt is at the lowest cost ever. You probably saw where IBM and Microsoft raised convertible debt last year. Coupon rate is zero. You can borrow money at basically no cost.
5. There are a lot of new public foreign buyers, in addition to the established foreign buyers. The first thing they want to do is buy in the west. European and American companies. Not only do you get the technology and the user base, but the feet in the street and the footprint in North America.
6. There are a lot more non tech buyers. You’ve probably heard in the past profiles of companies like Bosch and Brother. These are companies that are reinventing themselves by making acquisitions in tech. They also want to add value for the intelligence with the product that they sell. 
7. We have the crowd funded firms. They’re not doing so well right now in the stock market, Facebook, Zynga, and Groupon, but they’ve all been in the top ten, all of them, at some point as buyers. With new crowdfunding laws, we’re going to see a lot more of these firms coming along and shaking up the M&A world.
8. American companies are cheap to foreign investors. The US dollar has fallen over the past decade, relative to all currencies except the Mexican peso. This means that American companies are relatively cheap. Just look at the Japanese yen, and the Chinese yuan. American companies have lost on currency exchange rates up to 70% in the last decade. 
9. Conversely, the US is buying abroad. Remember that $350 billion I mentioned? 70% of it is abroad and it can’t be repatriated to home. You can’t use it to invest or loan to yourself, you can’t buy American stock or real estate, it has to be spent outside the US. Guess what? They’re spending in, actively, like in Microsoft’s acquisition of Skype. You’ll see a lot more of that. 
10. Lastly, software is rising in importance. Over the last year, strategic announces by HP, IBM and Dell said that they’re going more and more into software. IBM now has 46% o their business in software, and growing. 
11. If I had to add an eleven, it would be the patent wars. 

Market Spotlights

Now let’s move to the spotlight report, we’ll go to Amsterdam and hear from Jon Scott on Enterprise Mobility. Jon?

Jon Scott

Thanks. On Tuesday, I chaired a World Financial Symposiums Market Spotlight panel on mobile security. We had attendees from the US, Europe, India and Greece!

We discussed Mobility and security and wove in what’s happening in M&A in this sector. Elon Gasper joined me and spoke about important trends he and his research analysts are following We then had a panel of three former CEO’s from the mobile segment that had recently sold their companies including Rohyt Belani of Phishme. And today we are fortunate to have Rohyt join us again. He will be speaking to us in a few minutes.

We discussed the term "BYOD", or bring your own device, and how mobile devices are spreading malware, including data theft, hijacking of calling capability and other fraud. Another trend reviewed was that more enterprises are realizing that the lines between physical and logical security are blurring. Gartner recently reported that solutions now exist that make the integration of physical access control systems (like badge readers) and logical controls (such as Active Directory provisions) much more seamless. Gartner has termed this sector Physical Identity and Access Management.

The silver lining in these mobile security trends is that they create huge opportunities for new companies to get started that solve these problems. If you look at M&A in the mobile segment you see a lot of companies that develop point solutions that the big players haven’t focused on. These companies grow and often become Corum clients, and turn into part of a larger company. And wealth is created and more new companies are started. It’s really a nice cycle.

Back to you.

Bruce Milne

Thanks, Jon. Jon’s our senior vice president and is present stationed in Amsterdam. We sponsor market spotlights with the World Financial Symposium, trying to keep you updated on all the major markets and disruptive technology trends. We have one spotlight coming up on November 27 on Energy and Clean Tech, and one on December 18 on Healthcare. Huge market opportunities there.

Now we have a special report on software-defined networking SDN from Rob Schram, Director here at headquarters. Rob?

Rob Schram

Thanks, Bruce.

Computer networking is on the verge of some monumental change. It’s called Software Defined Networking, or “SDN” and it’s heralded to be the next “optimization battleground” in virtual environments. SDN is all about moving much of the intelligence of networks into software rather than hardware—which will still be needed, but less expensive commodity boxes can do the job. In this way, Software Defined Networking promises to make networks cheaper to build, faster to configure and more efficient to operate.

Computer room server technology has undergone significant improvements over the past 10 years, but the routers and switches responsible for moving the data around have remained largely the same. With SDN, the data switching control functions that are traditionally embodied within proprietary software that’s embedded in multiple vendors’ switching hardware, will now be consolidated and managed by a single central program, running on an inexpensive server.

This phenomenon is similar to what happened a few years back, when companies like VMware began offering virtualization software that made it possible to run more than one program on a single server system. IT departments were able to set up programs with a few mouse clicks instead of taking days or weeks to install servers and software. Now that virtualization has streamlined the data center, networking has become the bottleneck. IT staff still have to manually configure networks so the data can be shared securely, and this, until SDN came along, was a manual, cumbersome and time-consuming process.

Let’s take a look at some recent market activity: Speaking of VMware, in late July they snapped up the 100-employee SDN pioneering-startup Nicira for nearly $1.3B. And right on the heels of VMware’s acquisition, Oracle announced its own SDN play: agreeing to purchase Xsigo (for an undisclosed amount) to help extend its push into the datacenter.

For this year, IDC pegs the market for SDN at only $50M, but according to various analyst projections it’s expected to jump to $14B - $17B in revenue by 2016. And, all the industry big guns are getting on board:

 

 

 

 

1. This week at VMworld 2012 in Europe, F5 Networks, a leader in Application Delivery Networking, announced support for VXLAN functionality, which will enable organizations to seamlessly support SDN initiatives by combining VMware and F5 solutions.
2. Last week at Interop NY, HP announced a broad set of SDN technologies embodied within an open-standards-based architecture intended to automate the network from end-to-end, spanning all 3 critical layers: infrastructure, control software and applications. 
3. In late August, Microsoft announced that SDN capabilities will be powered by Windows Server 2012 in concert with System Center 2012 Service Pack 1
4. Rackspace Hosting, who’ve been testing SDN for the past 2 years, in August began rolling it out to about a third of their 180,000 customers, citing radical improvements in configuration adaptability. They’re deploying the SDN solution from Nicira.
5. AND, Last April Google executive, Urs Holzle disclosed that the search giant spent the last 2 years redesigning the network that connects its data centers - so that it’s entirely SDN. Holzle says the move saves money and makes the network easier to test and manage.
6. Finally, entrenched players like Cisco and Juniper, with a vested interest in the $37B data networking market, and the healthy margins associated with the status quo - are also embracing the technology. Cisco put $100M into an SDN startup called Insieme, with rights to buy, for up to $750M. And Juniper has plans to roll out its first SDN products within a year.

Who to watch in this rapidly emerging space? SDN is fueling a whole new crop of startups including Big Switch Networks, Midokura, Embrane, Contrail Systems, and others. Keep an eye on Big Switch Networks. Like Nicira, it’s another spinout from the Stanford University research lab. They’re currently positioning themselves as a platform play for the SDN ecosystem, promoting open industry standards and a breadth of SDN-accelerated applications.

Likely suitors for Big Switch and other newly minted SDN players? Possibly Citrix, also IBM (who has a partnership with Big Switch as well as its own evolving SDN strategy), Intel and, of course, the usual suspects: Cisco (an unsuccessful contender for Nicira), Juniper, HP, Dell (possibly seeking to augments its Force10 Networks acquisition made last year), Lucent and Arista Networks. As you can see, SDN is rapidly becoming a congested race - even in the starting gate.

So in conclusion, Software Defined Networking represents a quantum leap for the datacenter - enabling us to connect, aggregate and configure computing resources in unprecedented ways.
But of potentially greater impact will be the opportunities for software companies to springboard from this new platform and address other elements of network visibility such as analytics, big data and a host of SDN-proficient applications that leverage the newly consolidated power of the SDN control plane, extending new dimensions of capability, configurability and speed. It may be that developers of SDN-savvy applications will comprise the next wave of acquisitions in this rapidly emerging space.

The continued virtualization of the datacenter represents an open-ended environment for software innovation, and we look forward to keeping you up to date as these exciting developments continue.

Back to you, Bruce.

Bruce Milne

Excellent report, Rob. How big of a market did you say this was?

Rob Schram

Thirty-seven billion dollars in data networking. That’s up for grabs as the market shifts and reconsolidates.

Bruce Milne

Amazing. Clearly an industry that is a battle of giants. Fascinating to see Stanford labs right in the middle of all of it again. Excellent report, thanks.

Corum Update and Research Report

Now let’s go to our Research Department for our quarterly report, the most detailed in the world, I think, covering 26 market sectors. Elon Gasper, Amber Stoner, Jason Steblay. Elon?

Thanks, Bruce. We’ll review events of this past quarter, report on our updated six-sectors and 26 subsectors, with Corum valuation and other indices. We’ll take a look at the state of tech M&A deals and present our analysis of what it all means to software execs, entrepreneurs and investors. We begin with the public markets whose major indices presented an attractive backdrop for M&A this quarter as their 2012 stairstep climb continued, touching record highs along the way. In particular, tech powers on, though you may recall at the beginning of this quarter a trading software glitch had a NY Times columnist fuming that “the machines are now in charge,”if so, graphs like these indicate we should welcome our new masters.

Amber, what’s on the readout from our own Master indicator, the Corum Index?

Amber Stoner

Well, Elon, there were fewer total transactions this quarter than there were this time last year, as well as fewer private equity deals, although there was a higher private equity deal value, likely due to three of the eight mega deals being done by private equity firms. Also contributing to the increase in private equity deal value is the fact that these private equity guys have raised funds and have to spend that money; they can’t sit around waiting for valuation multiples to go down. So we have Carlyle Group acquiring Getty Images for $3.3B in a deal that highlights a trend that we’ve been seeing, of companies dealing in photos and images being acquired, which we’ll discuss in depth in the next few minutes.

Returning to private equity’s spending this quarter, in September, Blackstone Group spent $2B to acquire Vivint, a combination of Vivint Solar, which provides solar solutions that leverage the power purchase agreement model to offer affordable solar power to residential customers, and 2GIG Technologies, which develops industry-leading security and automation equipment for the residential and small commercial markets. This acquisition fits right in to Blackstone’s stated strategy of “connecting customers to the things that matter most to them – their homes, families, health, cars and businesses.”

Elon Gasper

And here I thought what mattered most to consumers were their computer games! We’ll see about that in a minute here, when we check up on that segment of our 26 Tech M&A subsectors, which we group into six major markets, as our subscribers know. By the way, you can subscribe to Tech M&A Monthly now, so you don’t have to worry about missing out. Rolling up those six markets by quarter shows an overall increase in Q3 now placing valuations very close to their two-year average. The highest-valued of the six is Horizontal Applications. There we continue to see multiples growing back toward the 3x revenues vantage point they briefly commanded last year.

Looking at the subsectors, most movement is in line with that general trend, with SCM action leading the move higher while Comm and HR continue to be volatile even in differing movement of /Sales and /EBITDA ratios. These situations remind us that M&A timing is more than finding a wave, sometimes it can be finding the right moment to match not just strategic needs but changing values for different financial attributes driven through to acquirer’s tastes by the public markets or at least supportable thereby.

Running across our subsectors somewhat we find, and today are highlighting, mobile software, for its broadening impact. Mobile has clearly revealed itself now as not just one “Moore” cycle after mainframe, mini, micro, personal, but a secular change due to substantive inherent differences, now manifesting particularly in Enterprise impact, where acronyms like that BYOD that Jon mentioned are jumping to the forefront of the future-shock-wave, with a new level of security challenges hitching a ride since systems of such complexity as Enterprise Mobile, forced by rapid demand dynamics to be stitched together quickly from disparate components, offer many tempting seams and rough edges.

That makes a market for companies like Copiun, and a good reason for Good Technology to buy them last month, as it extends its string of acquisitions aggressively targeting the MDM / MAM space with another round of fast and secure enterprise-level mobile file sharing and data syncing tech to shore up secure BYOD enterprise IT.

And let’s look at an Apple purchase announced early in Q3. For just a fraction of a percent of its huge cash hoard, the most valuable company ever beat Samsung to the punch for venerable fingerprint scanning mobile tech pioneer Authentec and its top-notch patent collection, in a deal people in the know had speculated about for some time. Authentec was just partnering up with Samsung to provide security and device management services to Android in BYOD contexts. This deal, closed just last week, gives Apple another edge in its wrestling match with Samsung, and goes to show us all again how big companies often buy for leverage in their larger struggles as much as for the more evident value you focused on as an entrepreneur or exec.

Such situations give sellers a chance at valuations well above sector averages. The buyer’s alternative to paying up at product levels for entry to hot markets is to buy services companies that specialize in that area, then build out from there. Jason, you have an example in IT Services, right?

Jason Steblay

Yes, plus some interesting dynamics are playing out in the IT services sector that may be having a positive effect on multiples which have ticked up slightly from the mid-year report. Our new Asian IT services sub-index also ticked up in Q3, as they faced some of the same dynamics as their western counterparts.

One such dynamic is the growing backlash to BPO. Another is the ongoing slowdown in the Financial and public sectors, which are key verticals for IT service companies. Both of these dynamics are driving services firms to broaden their product bases and attract customers in higher growth industries.

In September, the usually acquisition-shy, Infosys, picked up Europe’s Lodestone Management for about $350 million. With its large SAP customer base, LodeStone will help Infosys meet its stated goal of achieving a third of its revenue from management consulting and systems integration amid a slowdown and intensifying competition for its core outsourcing business.

Meanwhile, in that mobile security space, the NCC Group is making a similar effort to diversify its services profile. In August, it paid a healthy 3.3 times revenue, or $11 million, for the Mobile security testing firm Intrepidus group. With Intrepidus being NCC’s ninth acquisition in recent years, the company is clearly making a concerted effort to break into the network testing and software security space. Interpidus’s co-founder, Rohyt Belani, will discuss the transaction in greater detail during our sellers panel later in webinar, so stay tuned for that.

Elsewhere this quarter, our listeners will recall Wipro’s purchase of the Promax Group and SAIC’s acquisition of MaxIT Healthcare as further evidence that larger IT services companies are purchasing smaller, more focused firms with specific technological expertise to help move them into new verticals. Given the favorable M&A conditions and market challenges faced by larger IT services firms, we expect this trend to continue throughout the rest of the year.

Amber, what’s going on in the infrastructure sector?

Amber Stoner

Valuation multiples in the Infrastructure space as a whole have remained steady over Q3. In one of our highest trading sub-sectors, at 4.1x sales, we’ve seen a lot of acquisition activity in the virtualization space this past quarter. As Rob mentioned earlier, Nicira, a pioneer in software-defined networking and a leader in network virtualization for open source initiatives, was acquired in July by VMware for $1.3B. This acquisition expands VMware's networking portfolio allowing customers to create a pool of network capacity on top of any network infrastructure from which they can easily support isolated virtual networks. VMware believes the addition of Nicira positions them to be the industry leader in software-defined networking.

VMware plans to continue to support the open principles and technologies that have made Nicira solutions successful, including the Open vSwitch to connect physical networks and multiple hypervisors and the open extensibility framework to implement business-level policies from any cloud management system. This will allow enterprises and service providers to create the most flexible network topologies that seamlessly span any cloud environment.

In a similar deal, that Rob also referenced earlier, just a week later, Oracle acquired Xsigo Systems, a network I/O virtualization vendor, for an estimated $200M. The combination of Xsigo for network virtualization and Oracle VM for server virtualization is expected to deliver a complete set of virtualization capabilities for cloud environments, allowing Oracle to better compete with Dell, HP and IBM; Xsigo's technology should also strengthen Oracle's management capabilities, enabling the easier creation and migration of VMs across the fabric as well as potentially improving utilization across the LAN and SAN and reducing both networking equipment and power consumption.

Both acquisitions are a reflection of how networking is once again becoming important and a hot topic of conversation as well as a continuing M&A trend going forward.

Any interesting trends in the Vertical space, Elon?

Elon Gasper

Definitely, Amber. Since improving valuations are always interesting to our Vertical Applications audience, and these medians are creeping up on Horizontal and their own highs. Plenty of the trend and the transactions themselves are driven by the transition to SaaS, of course, in many of the subsectors of both, since SaaS companies command higher multiples due to the business model robustness with users that stick and efficient marketing / operations.

But within particular subsectors other impacts of technology are also driving consolidation. For instance, Healthcare sports a jaunty trend with the effect of Electronic Healthcare Records, or EHR, on M&A in that space. The booming field of EHR tech and market conversion recently emerged as a significant M&A driver; last year we saw the trend reach a quantifiable level sufficient to power projection models, reaching a new high in Q3 this year with so many deals we pulled together a list of the top ones and how they relate to HER, and then had to add another list just to cover this month so far, with deals popping up at the vigorous level that tells us a consolidation cycle is clearly in progress.

How near its peak is an issue we will be examining in the special report Bruce mentioned, for one of World Financial Symposiums market spotlight events later this year. So for now I’ll call out one transaction from last month to at least show it’s not solely a US phenomenon related to legislative change, since here’s Advanced Computer Software Group picking up little Strand Technology in a small but significant UK transaction at 2x revenues.

Jason Steblay

In another hot vertical, it was a challenge to keep up with the explosion of payment processing deals in Q3. In August, our listener’s will recall that we counted five deals involving electronic payments. Although there wasn’t quite that many in September, Digital River did shell out $103 million to acquire LML Payment Systems. The acquisition joins two complementary card-not-present payments businesses, positioning Digital River to further build-out its online payment processing business.

Additionally, Digital River will leverage LML’s banking and developer ecosystem to develop a mobile payments solution presumably aimed at consumers to keep up with new products from Google and Microsoft, as well as start-ups like Square.

Of course, this is all really being driven by efforts to make more money from consumers. And who else do they want to take money from? The gamers of course.

With the gaming market expected to reach $70 billion by 2015, gaming companies are jostling for market share. As we’ve discussed in previous webinars, the frenetic pace of activity in video gaming has continued to push multiples in the Consumer Application Software sector up this quarter.

At July’s Casual Connect Conference in Seattle, Corum’s own Jim Perkins detailed the cross-over strategies gaming companies of all types are pursuing and the resulting frenzy of M&A activity they’ve been generating. In the last three months we’ve seen an explosion of gaming deals, Including Zynga’s September Purchase of gaming studio, A Bit Lucky which will add mid-core gaming to its casual games catalog. Although much smaller in term of audience size, the average revenue per user—a key metric Zynga needs to improve to satisfy its newfound stockholders—is much higher in mid-core games than Zynga’s bread and butter casual games.

Elsewhere, console-based game maker Electronic Arts continued its cloud cross-over strategy in September with purchase of Studio ESN. ESN’s web-based game framework will help EA develop online games and lessen its dependence on major consoles.

Speaking of online, what’s going on in the internet sector Amber?

Amber Stoner

In the Internet sector, valuation multiples have remained fairly steady and are up from the end of Q2 in both sales and EBITDA multiples. One of the big trends we’ve been seeing in the Internet sector is the acquisition of companies in the photo and digital image space. The increasing penetration of smart devices and rise of social networks have led to an explosive growth of web photos, with the average person now having access to hundreds of thousands of photos in their network; this in turn is leading to an increase in M&A activity in the space.

Earlier we mentioned Carlyle’s August acquisition of Getty Images, which Carlyle plans to take to the next stage of product innovation and global growth. Also in Q3, we had the closing of Facebook’s billion dollar deal for Instagram, which it intends to use to build the best experience for sharing photos with family and friends, a key component of Facebook’s user experience and maybe its chance at stock price recovery.

In another photo deal, back in September, Singapore Telecom acquired Pixable for approximately $26.5M. Pixable is an online social networking aggregator of photos and videos shared by Facebook and Twitter contacts; it provides social web users with a personalized photo experience, using next generation predictive analytics and artificial intelligence to analyze users’ interactions and consumption habits to prioritize photos from close friends and family.

Using Pixable’s expertise and customer engagement as a foundation to go beyond viewing photos to using photos as a way to stimulate simple immersive communications, SingTel will be able to provide a distinctive value-added service to all mobile customers. SingTel plans to introduce digital services to its 462 million mobile customers in Asia and Africa, with Pixable and other rich technology platforms acquired through recent investments, SingTel will be able to further enrich the content and connections for customers in today’s digital world where more and more, people are going beyond text and voice to sharing mobile photos to communicate, which we expect to lead to more photosharing M&A in the future.

Elon Gasper

And that’s how we share our snapshot of this quarter’s Tech M&A with you. Bruce?

Bruce Milne

Great report, thanks. Did I hear 3.3 billion for Getty?

Amber Stoner

Yes, you did.

Bruce Milne

Wow. Apple is spending that cash hoard, which was how much?

Elon Gasper

Well over $100B, and their acquisitions haven’t made much of a dent on that.

Bruce Milne

They’re stepping it up. We just had a special report on gaming, too. We’ve referenced many different reports that we either do directly or co-sponsor, they’re all on our website. You’ll particularly want to look for the upcoming healthcare report.

Great report, thanks guys. The private equity folks are doing about 40% of the largest deals right now. There’s a lot of activity there, and they have a lot of cash.

Guest Speaker 

Now let’s go to our special guest Rohyt Belani and CEO of PhishMe, a fellow entrepreneur and industry expert. Congratulations to him, and welcome.

Rohyt Belani

Thank you so much for having me on. I know there was some talk about the Intrepidus deal, of course I can talk about that some more, as I was co-founder and CEO of Intrepidus Group. Listening to this web session, it’s been very interesting to hear how valuation multiples, especially in the security space and SaaS space have been growing. What we found with that deal was that Intrepidus Group was a pure play services company, so there was no product component, and normally you don’t expect valuation multiples to be what we received there. It’s public information, we got 3.4x on trailing twelve months’ revenue, about 12.3x on EBITDA, which is unheard of in the services space. But what we’re seeing as a transition here really, I think, is that people recognize that mobile security is an emerging high-growth area.

As far as this deal was concerned, there was also a premium given for the fact that there was a demonstrated ability by Intrepidus to actually generate IP and be able to spawn other innovative solutions. PhishMe, which I am the CEO of, was actually incubated inside Intrepidus and is now its own living, breathing entity as a separate company that focuses on the targeted phishing problem with a SaaS solution. The ability to demonstrate that IP that can be monetized, was created by Intrepidus, and that also added to the premium on the transaction.

In general, the mobile security area is hot for good reason, as the BYOD explosion builds and everyone is taking their devices into work. From a security standpoint especially, that’s the area I work in, and it’s kind of a nightmare scenario for a lot of security folk and it’s something that has to be dealt with. There’s a lot of activity with a lot of startups coming into this space, and the more established players are looking to gobble up the innovators. I foresee there will be continued consolidation and interest in the space for the foreseeable future.

Bruce Milne

Thank you. I’ve got a question for you, I just had one of my sons buy an iPhone 5 and my other son swore up and down that the only option was the Galaxy S3. Since you’re deep into the mobile space, what do you think of this ongoing war?

Rohyt Belani

It’s a swinging pendulum. Every day when you see the news, it’s something different. You start off with Apple winning their case and getting a $1B patent infringement fine imposed on Samsung which sounded like a clear victory. Then you had district court imposing an injunction, rubbing it in further, saying the Samsung Galaxy Nexus couldn’t be sold in the US and there are future hearings.

Just this morning, I believe, an appeals court actually said that what the district court did was overreaching and the ban was reversed. Hence, I guess, Apple stock continuing its downward trend and Google and Samsung seeing the uptick there. I suspect we’ll see some legal pendulum swinging as well, it’s always tough when it comes to IP cases, especially when you have two heavyweights like these ones on opposite sides of the bench here.

Honestly, I wouldn’t have a good answer for you as to which one to buy or which one will be allowed to be sold in the US or not!

Bruce Milne

Well one got each, so we’ll see.

We had a couple of other questions in here that came in. Someone is going to market and asked how we see the rest of 2012 going into next year in terms of valuation. Elon, what do you say?

Elon Gasper

Bruce, we’re very clear that valuations are supported by the trends that you mentioned at the beginning of the webinar, holding M&A strong, and by the macro situation. We know there are uncertainties out there, but we believe that technology M&A and the valuations of software companies are supported by such strong cyclical factors and strong changes in technology. We believe it will stick through the end of the year at least.

Bruce Milne

Great, thanks. A question that just came in as we were talking here, any thoughts regarding the impact of the Euro crisis on M&A activity in Europe? I might expand that just generally. I just got back from a four-city road trip starting in Edinburgh through London and Paris. We did a report last month, we’re seeing a lot of activity and we’ll be announcing a lot of European-based transactions next month. Frankly, we’re seeing good activity. I think that the concerns over there, and they are all concerned, are how long will values hold up? Values in tech deals remain strong, however, and activity is strong. It seems to be translating into more M&A activity. Elon, what do you think?

Elon Gasper

Absolutely, Bruce. Of course, there are a lot of things happening on the ground in Europe, politically and economically, but again we see tech M&A and software company valuations firewalled against that. We’re in a different world and that world is powered by the trends that were mentioned at the beginning of the webinar here. Particularly, in the case of Europe, the amount of American and multinational cash which needs to express itself in M&A abroad due to tax consequences attempting to repatriate that cash.

Bruce Milne

They can’t bring it back, so they need to spend it. My read on France, by the way, they’re very concerned about the socialist government and how far the taxes will go and what they might be on transactions. They just announced this week that they will be doing financial transaction taxes, and that opens the door to taxes on M&A, above and beyond just the normal capital gains. Particularly in France, we’re seeing companies that are going to market. It’s the second-largest source of private equity in Europe, and they just levied a 75% tax. PE guys are looking at that and wondering if they can stay in France. France’s richest man just applied for, what was it, citizenship in Belgium?

We had another question come in, we’ve gotten some really good ones today. “Do you see a premium being paid for SaaS providers? If so, how much?”

We have Ward Carter, chairman of Corum, who also specializes in this sector with us today. Ward?

Ward Carter

Thanks, Bruce. We’re in the process of doing a major update on some of our SaaS valuation data as I’m speaking at the SaaS university conference in Boston in a couple of weeks. But overall I’d say the gap continues to grow between so-called traditional licensing solutions versus SaaS. I say to toss out a number, they’re probably double that of a traditional perpetual licensing model. If you look at some of the data we provided earlier today on vertical market solutions versus horizontal solutions, a lot of that can be attributed to the dominance of the SaaS model within the horizontal applications, whereas the verticals are slower to convert and there are fewer pure play vertical market solutions that are entirely SaaS.

It’s a hot market, we’ve closed several deals this year at significant premiums. We’re often talking 3.5 to 4x revenue on some of these deals.

Bruce Milne

I think that might be it for now. Thanks for your questions. If you didn’t notice from the slideshow at the beginning of the show, at our annual panel, we had probably the two most important SaaS providers, by many measures, Salesforce.com and Concur, they were both live with us. I think they’ve already been invited back, so we’ll probably hear from them again at our next annual panel. I hope you can join us for that.

That concludes our Q3 global tech M&A webcast. Thanks for attending.