2Q12 Software Industry Financial Report

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Industry
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Financial Report
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Q2 2012 Software Industry Financial Report Contents

U.S. ECONOMY: SOFTWARE INDUSTRY MACROECONOMICS........................................................................ 2
IT SPENDING ............................................................................................................................................................ 2
INTERNET RETAIL SPENDING AND ADVERTISING ............................................................................................ 3
PUBLIC SOFTWARE/SAAS/INTERNET COMPANY STOCK PERFORMANCE ................................................... 3
PUBLIC SOFTWARE COMPANY FINANCIAL PERFORMANCE .......................................................................... 4
PUBLIC SOFTWARE COMPANY MARKET VALUATIONS ................................................................................... 5
PUBLIC SOFTWARE COMPANY FINANCIAL PERFORMANCE: BY PRODUCT CATEGORY.......................... 6
PUBLIC SOFTWARE COMPANY MARKET VALUATIONS: BY PRODUCT CATEGORY ................................... 7
PUBLIC SOFTWARE AS A SERVICE (SAAS) FINANCIAL PERFORMANCE ...................................................... 8
PUBLIC SOFTWARE AS A SERVICE (SAAS) COMPANY MARKET VALUATIONS ........................................... 9
PUBLIC SOFTWARE AS A SERVICE (SAAS) FINANCIAL PERFORMANCE: BY PRODUCT CATEGORY .... 10
PUBLIC SOFTWARE AS A SERVICE (SAAS) COMPANY MARKET VALUATIONS: BY PRODUCT
CATEGORY ............................................................................................................................................................ 10
PUBLIC INTERNET COMPANY FINANCIAL PERFORMANCE ........................................................................... 10
PUBLIC INTERNET COMPANY MARKET VALUATIONS .................................................................................... 12
PUBLIC INTERNET COMPANY FINANCIAL PERFORMANCE: BY PRODUCT CATEGORY ........................... 12
PUBLIC INTERNET COMPANY MARKET VALUATIONS: BY PRODUCT CATEGORY .................................... 13
INITIAL PUBLIC OFFERINGS................................................................................................................................ 14
SOFTWARE/SAAS M&A DEAL VOLUME AND SPENDING ............................................................................... 16
IMPORTANT CHANGE IN SOFTWARE AND SAAS M&A DATA ACCOUNTING............................................... 17
SOFTWARE M&A VALUATIONS .......................................................................................................................... 17
SOFTWARE M&A VALUATIONS BY EQUITY STRUCTURE............................................................................... 18
SOFTWARE M&A VALUATIONS BY SIZE ........................................................................................................... 18
SOFTWARE M&A BY VERTICAL AND HORIZONTAL MARKETS ..................................................................... 19
SOFTWARE M&A BY PRODUCT CATEGORY .................................................................................................... 20
SOFTWARE AS A SERVICE (SAAS) M&A DEAL VOLUME AND VALUATIONS .............................................. 21
INTERNET M&A DEAL VOLUME AND VALUATIONS ......................................................................................... 23
APPENDIX A: 2Q12 PUBLIC SOFTWARE MARKET VALUATIONS AND STATISTICS BY PRODUCT
CATEGORY ............................................................................................................................................................ 25
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Copyright 2012 Software Equity Group, L.L.C., All Rights Reserved

APPENDIX A: 2Q12 PUBLIC SOFTWARE MARKET VALUATIONS AND STATISTICS BY PRODUCT
CATEGORY ............................................................................................................................................................ 26
APPENDIX B: 2Q12 PUBLIC SAAS MARKET VALUATIONS AND STATISTICS BY PRODUCT CATEGORY 27
APPENDIX C: 2Q12 PUBLIC INTERNET MARKET VALUATIONS AND STATISTICS BY PRODUCT
CATEGORY ............................................................................................................................................................ 28
APPENDIX D: 2Q12 MERGERS AND ACQUISITIONS, SELECT PUBLIC SELLER VALUATIONS .................. 29
APPENDIX E: 2Q12 MERGERS AND ACQUISITIONS, MOST ACTIVE BUYERS .............................................. 30
APPENDIX F: 2Q12 MERGERS AND ACQUISITIONS, SELECT INDUSTRY MEGA-DEALS............................ 32
APPENDIX G: 2Q12 MERGERS AND ACQUISITIONS, SELECT SOFTWARE-AS-A-SERVICE SELLERS ..... 33
This Report may not be reproduced in whole or in part without the expressed prior written authorization of Software Equity Group, L.L.C.
Software Equity Group registers each Report with the U.S. Copyright Office and vigorously enforces its intellectual property rights.
Copyright 2012 Software Equity Group, L.L.C., All Rights Reserved
Investment Banking / Mergers & Acquisitions
Figure 1: U.S. Gross Domestic Product and Unemployment Rate

10%
GDP % Growth
Unemployment Rate
8%
6%
4%
5.0%
3.7%
3.6%
3.2%
2.7%
2%
1.1%
2.2%
2.1%
2.1%
1.5%
2.6%
3.0%
3.1%
1.8%
1.7%
2.2%
1.5%
1.3%
1.2%
0.4%
0%
-0.7%
-0.7%
-2%
-2.7%
-4%
-5.4%
-6%
-6.4%
-8%
2Q06
2Q07
2Q08
U.S. ECONOMY: SOFTWARE INDUSTRY

MACROECONOMICS
We begin with a brief synopsis of U.S. Gross
Domestic Product (GDP) performance based
upon the most recent data available. GDP is best
defined as the total market value of all final goods
and services produced in a country in a given
year, equal to total consumer, investment and
government spending, plus the value of exports,
minus the value of imports.
The Bureau of Economic Analysis (BEA) issued
its first estimate of U.S. GDP for the second
quarter of 2012, indicating the U.S. economy
continues to decelerate. After four consecutive
quarters of accelerating growth in 2011, this year
has been marred by sequential deceleration in Q1
and Q2 (Figure 1). The second quarters
lackluster growth rate of 1.5% reflected a sharp
decline in consumer spending, which fell from
2.4% in Q1 to 1.5% in Q2, as well as the fragile
state of the U.S. and global economies. There
was some good news for the software industry, as
equipment and software purchases increased
7.2%, compared to Q1s 5.4%.
A June employment report released by the U.S.
Bureau of Labor Statistics confirmed the job
market remains weak. After three consecutive
quarters of slow but steady improvement, the U.S.
unemployment rate remained unchanged at
8.2%.
2| 2Q12 SOFTWARE INDUSTRY FINANCIAL REPORT
2Q09
2Q10
2Q11
2Q12
IT SPENDING
SEG carefully monitors enterprise IT spending
each quarter as a means of forecasting
downstream public software company financial
performance and software M&A deal volume.
Simply put, we long ago determined that healthy
IT spending drives public software companies to
buy, not build, in response to growing market
demand. To provide some perspective, we
estimate every percentage increase/decrease in
IT spending equates to approximately $5 billion.
Our readers will recall large enterprises cut back
sharply on spending for software, hardware and
IT services in 2009 during the economic
downturn, when IT capital spending declined by
more than 10%. The spending cut had an almost
immediate and traumatic impact on public
software company revenue and software M&A
activity and valuations declined. In 2010 and
2011, enterprise customers loosened their purse
strings and domestic IT capital spending grew 8%
and 6%, respectively.
Reflecting the increased uncertainty in the global
economy, analysts continue to forecast tepid
worldwide IT spending forecasts for 2012.
Goldman recently lowered its 2012 forecast of
worldwide IT spending from 4% in January to 3%.
Goldman attributed the reduction to lower GDP
growth in advanced economies. Gartner also
forecasts 3% growth in worldwide IT spending, up
from their previous estimate of 2.5% in 1Q12.
When increasing its IT forecast, Gartner pointed

to a stabilized outlook despite the Eurozones
debt and banking crisis, a weak US recovery, and
Chinas GDP slowdown. Among Goldman,
Gartner and IDC the consensus for domestic IT
spending in 2012 is 3% (Figure 2).
Though IT spending will grow only modestly,
some will fare better than most. Gartner forecasts
enterprise spending on public cloud services will
reach $109 billion in 2012, and grow to $207
billion by 2016.
1Q12, reaching $8.4 billion, a 15% year-over-year

increase from 1Q11s $7.3 billion.
The appropriate benchmarks in this arena,
according to marketers and agencies, is the
percentage of time digitally connected consumers
spend on the Internet relative to their overall
media consumption, and the spending on Internet
advertising relative to total advertising spending.
In May 2012, Mary Meeker of Kleiner Perkins
showed the gap has closed dramatically: Internet
consumption was 26% of total media
consumption, and Internet advertisers grabbed a
record 22% of all advertising dollars.
Figure 2: Domestic IT Spending

10.0%
PUBLIC SOFTWARE/SAAS/INTERNET COMPANY

STOCK PERFORMANCE
9.0%
8.0%
6.0%
6.0%
YoYChangeinITSpending
5.0%
3.0%
0.0%
2007
2008
2009
2010
2011
2012
5.0%
10.0%
-10.0%
15.0%
Following strong growth and solid returns in the

first quarter, each of the major stock indices
retreated sharply by the close of the second
quarter, but managed to hold onto positive yearto-date returns. The tech heavy NASDAQ index
finished Q2 with a total YTD return of 12.7%,
5.9% lower than at the close of Q1. The S&P 500
and DOW lagged behind, ending Q2 with YTD
returns of 8.3% and 5.4%, respectively (Figure 3).
IT Spending values calculated using an average of Goldman, Gartner and IDC estimates
INTERNET RETAIL SPENDING AND ADVERTISING

In the Internet sector, we believe online retail
spending and Internet advertising spending each
quarter presage the financial performance and
M&A activity of many public Internet companies.
Buoyed by a continually growing number of
shoppers, online retail sales continued to rise
17% in 1Q12 (the latest quarter for which data is
available) according to comScore, achieving the
highest growth rate since 2007. It was the tenth
consecutive quarter of growth for online retail.
Among online retails most popular categories in
1Q12 were digital content and subscriptions,
computer software, consumer electronics, jewelry
and watches and events tickets, each growing by
at least 17% year-over-year.
The Interactive Advertising Bureau (IAB) and
PricewaterhouseCoopers (PwC) reported Internet
advertising revenues soared to record levels in
Among SEGs three tracking indices, the market

performance of public companies comprising our
SaaS Index far outshone their perpetual software
and Internet counterparts. Thanks to accelerating
growth, heightened M&A activity and stellar exit
multiples (see M&A section for details), the stock
prices of public SaaS companies posted a median
28.2% year-to-date return by the close of Q2,
after surging 22.0% in June. Five superstars
posted YTD stock returns in excess of 50%: Ellie
Mae (218.6%), Athenahealth (61.2%), Ariba
(59.4%), LivePerson (51.9%) and Bazaarvoice
(51.7%). Aribas return was driven by the 19.6%
premium paid by SAP when acquiring the
Company in May 2012.
After posting a 22.4% median stock return in the
first quarter, the highest among our three tracking
indices, the SEG Internet Index closed Q2 with the
lowest YTD stock return, 4.3%. The sharp drop
was primarily attributable to renewed economic
fears, faltering on-line consumer spending, and
Facebooks IPO debacle which adversely impacted
an array of high risk, highly valued Internet stocks.
Figure 3: Major Market Indices Compared to the SEG Software, Internet & SaaS Indices
DOW
30.0%
S&P
NASDAQ
SEG SaaS
SEG SW Index
SEG Internet Index
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
(5.0%)
Jan
Feb
Mar
PUBLIC SOFTWARE COMPANY FINANCIAL

PERFORMANCE
The 144 public companies comprising the SEG
Software Index grew TTM revenue a median
15.5% in 2Q12, barely surpassing the first
quarters 14.9% (Figure 4). Still, the modestly
improved revenue growth rate was impressive,
given Q2s macro-economic headwinds and
lowered IT spending forecasts. Q2s improved
median growth rate follows on the heels of two
consecutive quarters of declining growth.
Of the top ten software companies posting the
highest TTM revenue growth in Q2, five derived
all or a substantial part of their revenue from
mobile software solutions. The list includes Qihoo
(202% TTM revenue growth), Gree (158%),
Millennial Media (117%), Zynga (65%) and Velti
(63%).
But mobile proved to be a double-edged sword.
Six of the ten software companies with the lowest
TTM revenue growth were also mobile solution
providers: Smith Micro Software (-58% TTM
revenue growth), Myriad Group (-40%), Access
(-32%), RealNetworks (-13%), BSQUARE (-9%)
and Motricity (-7%). Unlike their top performing
peers, these mobile companies are struggling to
adapt legacy business models to a rapidly
evolving market.
Apr
May
Jun
Healthcare providers were also well represented

among the ten companies achieving the highest
TTM revenue growth, led by Greenway Medical
Technologies (45%), MedAssets (40%) and
Merge Healthcare (39%). Other software
providers in the top ten were recently public
Splunk (83%) and Sapiens International (54%).
The second quarters growth rate helped drive the
median TTM revenue of the SEG Software Index
above $365 million (Figure 4). Indeed, Q2s
median TTM revenue is more than twice the
median TTM revenue of the SEG Software Index
in 2Q08.
Figure 4: SEG Software Index Median Metrics
SEG - Software: Median Metrics
Measure
EV/Revenue
EV/EBITDA
EV/Earnings
Current Ratio
Cash & Eq ($M)
Gross Profit Margin
EBITDA Margin
Net Income Margin
TTM Revenue Growth
TTM Total Revenue ($M)
TTM Total EBITDA ($M)
Debt / Equity Ratio
2Q11
2.9x
14.1x
24.8x
2.1
$145.4
68.9%
19.0%
9.6%
15.2%
$325.9
$52.3
24.7%
3Q11
2.4x
11.6x
21.6x
2.0
$150.0
68.2%
19.0%
10.5%
17.0%
$344.8
$58.9
21.8%
4Q11
2.5x
12.3x
21.5x
2.0
$132.0
67.4%
18.9%
10.4%
16.9%
$355.6
$60.8
21.6%
1Q12
2.7x
12.9x
23.0x
2.0
$143.3
66.4%
18.9%
10.0%
14.9%
$352.4
$53.2
23.6%
2Q12
2.5x
11.5x
22.3x
2.0
$171.2
66.2%
18.5%
10.4%
15.5%
$365.1
$58.5
21.7%
$250
150
$200
100
$150
$100
50
MedianTTMRevenue
($millions)
#ofPublic SoftwareCompanies
inSEG SoftwareIndex
$350
$300
$50
$0
0
2Q08
2Q09
2Q10
2Q11
25%
20%
140
120
15%
100
80
10%
60
40
5%
MedianEBITDAMargin
160
20
2Q12
1Q12
4Q11
3Q11
2Q11
1Q11
4Q10
3Q10
2Q10
1Q10
4Q09
3Q09
0%
2Q09
PUBLIC SOFTWARE COMPANY MARKET

VALUATIONS
2Q12
Figure 7: SEG Software Median EV/Revenue

Multiples
3.5x
3.0x
MedianEV/RevenueMultiple
$400
200
EBITDAMargin
At the close of 2Q12, the median EV/Revenue

multiple of public companies in our SEG Software
Index was 2.5x, slightly lower than 1Q12s 2.7x.
The median EV/Revenue multiple of the SEG
Software Index has now been at or above 2.0x for
eleven consecutive quarters (Figure 7).
Figure 5: SEG Software Index TTM Revenue

vs. Company Count
250
Cash
180
1Q09
Among our top ten most profitable software

companies was a considerably smaller player,
SolarWinds, with TTM revenue of $215 million.
Benefitting from a highly unique and cost effective
revenue and sales strategy, SolarWinds drove Q2
EBITDA margins to 48%.
Figure 6: SEG Software Historical Median

Cash and Median EBITDA Margins
4Q08
Many of the most profitable on-premise software

companies are industry behemoths that have the
size and market leverage to drive high margins,
including Oracle (43% EBITDA margin), Microsoft
(42%) and SAP (37%). But an array of smaller,
mid-cap public software companies also had a
keen eye on the bottom line in 2Q12, led by
CheckPoint Software (56% EBITDA margin),
Gree (53%) and ANSYS (48%).
3Q08
Public software companies proved especially

adept at maintaining their healthy EBITDA
margins in the second quarter. The median
EBITDA margin of the on-premise public software
companies comprising our Software Index was
18.5% in Q2, down slightly from 1Q12s 18.9%
(Figure 4).
Public software companies continued to increase

cash and equivalents on their balance sheets,
undoubtedly a reflection of their notable EBITDA
margins. In 2Q08, the median cash and
equivalents of the SEG Software Index was $72.7
million and the median EBITDA margin was only
12.8%. In 2Q12, median cash and equivalents
had grown 136% to $171.2 million, and the
median EBITDA margin had increased 31% over
the four year period (Figure 6). The significant
cash reserves and strong balance sheets of most
public software companies, particularly the
industrys largest players, bode well for many
small and mid-cap software company M&A
targets.
2Q08
Over this same time period, the number of public

software companies has declined from 218 to
144 - further evidence that consolidation in the
software sector is resulting in not only fewer, but
considerably larger, publicly traded software
companies (Figure 5).
MedianCashBalance
($millions)
2.5x
2.0x
1.5x
1.0x
0.5x
0.0x
The second quarters market downturn had an

especially adverse impact on smaller public
software company valuations (Figure 8). As
testament, in 2Q12, the median EV/Revenue
multiple of SEG Software Index companies with
TTM revenues between $100 million and $200
million plunged to 2.1x from 2.7x the prior quarter.
Only one year ago, this group achieved a median
EV/Revenue of 3.8x.
Figure 8: SEG Software Valuation by Size of
Buyer (TTM Revenue)
4.5x
4.0x
MedianEV/Revenue
3.5x
3.0x
2.5x
In the second quarter, median TTM revenue grew

20% or more in four of our SEG Software Index
product categories (Figure 10). Vertically focused
software providers led the pack, posting a median
24.2% TTM revenue growth rate. The category
was led by Sapiens International (54.0%), PROS
Holdings (36.1%), and EPIQ Systems (30.2%).
Networking & Network Performance Management
finished close behind, closing 2Q12 with a 22.9%
TTM revenue growth rate. Companies benefitting
from strong demand to optimize performance of
cloud infrastructure and mobile networks include
Allot Communications (37.5%), Aruba Networks
(36.4%), and Keynote Systems (32.7%).
2.0x
1.5x
1.0x
0.5x
0.0x
2Q11
3Q11
4Q11
1Q12
2Q12
RevenueGreaterThan$1billion
RevenueBetween$200millionand$1billion
RevenueBetween$100millionand$200million
RevenueLessThan$100million
Size (i.e., annual revenue) wasnt the only

important determinant of a public software
companys EV/Revenue multiple. EBITDA
margins clearly played a part in Q2s public
software company market valuations. Public
software companies with 40% or higher EBITDA
margins were awarded with a median
EV/Revenue multiple of 3.9x, nearly two times the
2.0x multiple of those with EBITDA margins below
10% (Figure 9).
Figure 9: 2Q12 EV/Revenue Multiples vs.
EBITDA Margin
4.5x
3.9x
4.0x
3.4x
3.5x
MedianEV/Revenue
PUBLIC SOFTWARE COMPANY FINANCIAL

PERFORMANCE: BY PRODUCT CATEGORY
3.0x
2.6x
2.5x
2.0x
2.0x
1.9x
<10%
>10%
<=20%
1.5x
1.0x
0.5x
0.0x
>20%
<=30%
>30%
<=40%
>40%
Healthcare providers (22.6%) continue to benefit

from massive regulatory changes which attempt
to deal with the skyrocketing costs of healthcare
by incentivizing healthcare providers to adopt
healthcare technology to streamline operations
and improve care. The category was led by
Greenway Medical Technologies (45.3%),
MedAssets (39.5%), Merge Healthcare (39.1%),
Accelrys (29.9%) and Simulations Plus (28.4%).
The other hot product category with TTM revenue
growth above 20% was Billing & Service
Management (22.3%).
Five software product categories posted TTM
revenue growth rates below 10%: Storage, Data
Management & Integration (7.7%), Financial &
Accounting (7.1%), Development Platforms
(6.4%) and IT Conglomerates (5.3%).
As for the most profitable software product
categories, companies in the IT Conglomerate
and Vertical - Finance categories posted the
highest median EBITDA margins in the second
quarter, 36.9%. Among the most profitable of the
industrys behemoths were Oracle (43% EBITDA
margin), Microsoft (42%) and SAP (37%). The
Vertical Finance category, consisting of
software providers vertically focused on the
finance industry, demonstrated strength from top
to bottom, with four out of five generating EBITDA
margins above 31%. This category was led by
MSCI (45.3% EBITDA margins) and FX Alliance
(38.3 EBITDA margins).
Figure 10: SEG Software Index Median Metrics by Product Category

SEG Software Index
EV/Revenue
Category
EV/EBITDA
Revenue
Growth
EBITDA
Growth
EBITDA
Margin
YTD Stock
Return
2Q11
3Q11
4Q11
1Q12
2Q12
2Q11
3Q11
4Q11
1Q12
2Q12
2Q12 (TTM)
2Q12 (TTM)
2Q12 (TTM)
2012
Billing & Service Management
2.8x
1.3x
1.3x
1.3x
1.3x
7.4x
5.2x
5.6x
6.6x
6.9x
22.3%
0.3%
18.5%
(1.1%)
Business Intelligence
3.2x
2.8x
2.4x
2.3x
2.5x
43.1x
39.6x
36.5x
39.3x
38.1x
19.0%
6.0%
8.7%
12.6%
Development Platforms
2.6x
1.8x
1.9x
2.3x
1.9x
10.5x
8.0x
9.0x
10.1x
9.1x
6.4%
2.9%
22.1%
14.5%
Engineering & PLM
2.4x
1.9x
2.0x
2.6x
2.3x
17.4x
12.8x
13.5x
14.3x
11.5x
13.5%
43.1%
19.9%
15.4%
Enterprise Resource Planning
3.2x
2.8x
2.8x
3.0x
2.4x
11.1x
9.1x
9.6x
10.2x
8.3x
10.1%
10.4%
29.0%
11.7%
Financial & Accounting
2.8x
2.3x
2.6x
2.8x
2.7x
10.1x
8.9x
9.2x
9.8x
9.8x
7.1%
9.5%
25.6%
15.4%
Gaming
1.0x
1.4x
1.2x
1.2x
0.9x
10.9x
9.1x
7.8x
7.1x
7.6x
14.1%
7.3%
9.2%
(18.4%)
Healthcare
3.9x
3.5x
3.1x
3.6x
3.3x
19.6x
19.0x
15.5x
18.4x
15.3x
22.6%
45.7%
22.3%
2.8%
IT Conglomerates
2.6x
2.6x
2.5x
3.1x
2.9x
8.8x
8.5x
9.0x
8.2x
7.7x
5.3%
6.6%
36.9%
11.7%
Mobile Solutions/Content
3.3x
2.1x
2.2x
2.9x
2.5x
25.7x
18.2x
25.4x
19.9x
15.4x
16.2%
(15.5%)
6.6%
(4.9%)
Networking & Network Performance Management
4.3x
3.0x
2.9x
3.4x
2.9x
24.8x
16.9x
19.7x
20.0x
19.1x
22.9%
29.7%
17.5%
(6.2%)
Security
3.1x
2.6x
2.9x
3.2x
2.9x
16.5x
13.1x
14.5x
13.0x
10.2x
19.4%
15.7%
19.7%
0.0%
Storage, Data Management & Integration
2.6x
2.1x
2.2x
2.5x
2.4x
12.7x
9.8x
9.8x
10.3x
9.4x
7.7%
10.6%
22.6%
15.8%
Supply Chain Management & Logistics
2.2x
1.9x
2.2x
2.3x
2.1x
12.0x
11.2x
11.9x
12.9x
11.3x
17.3%
36.9%
19.6%
12.9%
Systems Management
7.3x
5.0x
5.5x
5.9x
5.9x
21.7x
18.5x
20.9x
22.2x
23.0x
18.1%
21.1%
26.2%
34.0%
Vertical - Finance
4.7x
3.8x
3.9x
3.8x
3.7x
15.4x
13.3x
12.7x
11.6x
11.6x
13.1%
15.9%
36.9%
7.3%
Vertical - Other
3.1x
2.7x
2.8x
3.3x
3.0x
15.1x
14.1x
16.4x
18.5x
16.6x
24.2%
13.1%
18.0%
11.5%
2.9x
2.4x
2.5x
2.7x
2.5x
14.2x
11.4x
12.3x
12.9x
11.5x
15.6%
13.4%
18.5%
9.9%
Median
The Mobile solutions product category had the

lowest median EBITDA margin in 2Q12, at 6.6%.
Typical of any product category undergoing rapid
market adoption and consolidation, EBITDA
margins varied drastically from one mobile
solutions provider to the next. Gree, an emerging
provider of mobile social games, finished 2Q12
with an EBITDA margin of 53.0%. By contrast,
Smith Micro, a legacy provider of phone tools to
mobile OEMs and wireless carriers, finished 2Q12
with EBITDA margins of -74.4%.
PUBLIC SOFTWARE COMPANY MARKET

VALUATIONS: BY PRODUCT CATEGORY
Sixteen of the seventeen product categories
comprising the SEG Software Index saw their
median EV/Revenue multiples decline YoY as a
result of the deteriorating economic climate and
market perturbation. The lone exception was the
IT Conglomerates category, which managed to
improve its median EV/Revenue multiple YoY, as
investors sought safer investments in the face of
increasing uncertainty. But its all relative.
Five of our software product categories achieved
a median EV/Revenue multiple of 3.0x or higher
in 2Q12. The Systems Management category
posted a whopping EV/Revenue multiple of 5.9x,
led by companies who are spearheading the
cloud revolution, namely: SolarWinds (14.4x
EV/Revenue), VMWare (9.7x), RedHat (8.5x) and
Citrix Systems (5.9x). The Systems Management
group has been strong for well over a year with
EV/Revenue multiples ranging from 5.0x to 7.3x

over the past four quarters.
A distant second was the Vertical Finance
category, which closed 2Q12 with a median
EV/Revenue multiple of 3.7x, no doubt bolstered
by the categorys strong EBITDA margins. The
Healthcare category finished 2Q12 with a median
EV/Revenue multiple of 3.3x.
Interestingly, the median EV/Revenue multiples of
most software product categories were barely
impacted by their TTM revenue growth rates
(Figure 11). Vertical-Other, the product category
with the highest TTM revenue growth rate in 2Q12
posted a median EV/Revenue multiple of 3.0x,
while IT Conglomerates, the category with the
lowest TTM revenue growth rate, closed 2Q12
with a median EV/Revenue multiple of 2.9x.
The Billing & Service Management product
category experienced the largest YoY decline in
market valuation. The category has been a
perennial laggard and the majority of companies
in the category are struggling to reinvent
themselves. Even Synchronoss Technologies,
which has been a category stand out over the
past year, returned to earth and finished 2Q12
with median EV/Revenue multiple of 2.7x, down
from 4.9x in 1Q12. Nevertheless, Synchronoss
remains the category standout, providing best of
class solutions to service providers struggling to
manage and synchronize the barrage of mobile
devices connecting to their networks.
Figure 11: SEG Software Median EV/Revenue vs.

TTM Revenue Growth
7.0x
TTM Revenue has virtually no impact
on the median EV/Revenue multiple of
software product categories
6.0x
MedianEV/Revenue
11
5.0x
4.0x
6
14
3.0x
13
3
5
2.0x
9
7
16
17
12
10
15
8
1.0x
0.0x
0%
1.
2.
3.
4.
5.
6.
5%
10%
15%
20%
TTMRevenueGrowth
IT Conglomerates
Vertical - Finance
7.
8.
9.
10.
11.
Engineering & PLM

Gaming
Systems Management
25%
12.
13.
14.
15.
16.
17.
30%
Security
Healthcare
Networking & Network Performance
Vertical - Other
PUBLIC SOFTWARE AS A SERVICE (SAAS)

FINANCIAL PERFORMANCE
As SEG forecasted in our Q1 report, the median
TTM revenue growth rate of public SaaS
companies in 2Q12 exceeded 30%. The final tally
of 30.3% is the highest in three years (Figure 12).
The median TTM revenue growth rate of our
SaaS Index constituents has now remained above
20% for six consecutive quarters. With SaaS
adoption growing once again, we anticipate the
median SaaS TTM revenue growth rate will
remain above 30% throughout the year.
Figure 12: SEG SaaS Index Median Metrics

SEG - SaaS: Median Metrics
Measure
EV/Revenue
EV/EBITDA
EV/Earnings
Current Ratio
Cash & Eq ($M)
Gross Profit Margin
EBITDA Margin
Net Income Margin
TTM Revenue Growth
Debt / Equity Ratio
Four outperformers achieved TTM revenue

growth of 46% or more in 2Q12: Bazaarvoice
(64.6%), Cornerstone OnDemand (63.2%),
Demandware (48.7%) and Ellie Mae (46.4%). By
contrast, IntraLinks Holdings was the sole public
SaaS provider who didnt achieve double digit
TTM revenue growth, registering a relatively paltry
7.3% (Figure 13).
2Q11
5.7x
40.7x
92.0x
1.7
$55.4
68.9%
8.0%
0.9%
29.2%
$134.3
$12.7
3.9%
3Q11
4Q11
1Q12
5.1x
4.4x
5.3x
33.8x
29.7x
33.6x
72.0x
82.2x
34.1x
1.9
1.8
1.7
$74.4 $68.1 $78.8
69.8% 70.0% 70.9%
10.5%
9.2%
9.9%
1.5%
1.8% -0.5%
27.3% 26.1% 28.4%
$134.3 $160.0 $169.0
$17.6 $20.7 $21.9
4.7%
3.5%
2.5%
2Q12
5.0x
30.1x
38.1x
2.2
$95.5
71.0%
9.9%
0.4%
30.3%
$172.7
$23.7
7.1%
Unsurprisingly, the growth of these SaaS

companies has been driven in large part by their
enhanced investment in sales and marketing,
which has grown from 23% of total revenue in
2Q10, to 32% in 2Q12 (Figure 14). What is
surprising is the return (measured in TTM revenue
growth) of their sales and marketing investments.
Since 2Q10, public SaaS company sales and
marketing spends as a percent of total revenue
has grown nearly 50%. Impressively, over this
same time period, TTM revenue growth has
grown 150%.
In 2Q12, four SaaS providers spent more than
50% of their revenues on S&M: Cornerstone
OnDemand (64.2%), Salesforce (52.3%), Vocus
(52.1%) and Netsuite (50.9%). Interestingly,
despite spending 50% more on sales & marketing
as a percent of total revenue, Netsuite and Vocus
both finished 2Q12 with median TTM revenue
growth below the median (24.6% and 21.0%
respectively).
Along with the stellar revenue growth, public
SaaS companies remain mindful of the bottom
line as well. In 2Q12, the median EBITDA margin
of the SEG SaaS Index was 9.9%, up 24% from
2Q11s 8.0%. Three outperformers reported
EBITDA margins above 20%: EBIX (43.6%),
OpenTable (29.8%) and Medidata (20.8%). By
contrast six public SaaS companies finished 2Q12
with negative EBITDA margins: Cornerstone
OnDemand (-25.5%), Bazaarvoice (-19.4%),
Callidus Software (-10.3%), Netsuite (-6.8%),
ServiceNow (-6.7%) and ExactTarget (-2.1%).
Its clear these five companies are prioritizing
revenue growth as all but Callidus, finished 2Q12
with TTM revenue growth above 43%.
Figure 13: Public SaaS Companies

SEG SaaS Index
Company
Category
EV/Revenue
EV/EBITDA
TTM Revenue Growth
EBITDA Margin
4Q11
1Q12
Ariba, Inc. (ARBA)
ERP & Supply Chain
7.5x
6.1x
6.1x
5.6x
7.1x
103.2x
85.5x
84.9x
76.5x
87.0x
14.5%
26.9%
38.5%
42.7%
36.7%
7.3%
7.1%
7.2%
7.4%
8.1%
Athenahealth, Inc. (ATHN)
Vertically Focused
5.5x
6.8x
6.2x
6.9x
7.2x
37.3x
40.3x
36.2x
45.7x
48.1x
29.2%
30.5%
30.5%
32.0%
34.4%
14.8%
16.9%
17.1%
15.0%
15.1%
-27.9% -24.1% -20.8% -20.4% -19.4%
Bazaarvoice, Inc. (BV)
Other SaaS
Callidus Software Inc. (CALD)
Workforce Mgmt
2Q11
3Q11
4Q11
1Q12
2Q12
2Q11
3Q11
4Q11
1Q12
2Q12
2Q11
3Q11
4Q11
1Q12
2Q12
2Q11
3Q11
11.0x
9.4x
66.8%
64.6%
2.4x
1.9x
2.2x
2.9x
2.4x
4.5%
17.6%
19.6%
18.2%
15.4%
2Q12
-3.4%
-3.6%
-5.6%
-7.0%
-10.3%
Concur (CNQR)
Other SaaS
7.4x
5.6x
6.4x
7.9x
8.0x
46.1x
39.5x
49.0x
68.9x
59.2x
18.6%
18.4%
19.3%
21.0%
24.0%
16.1%
14.1%
13.1%
11.4%
13.6%
Constant Contact (CTCT)
Other SaaS
3.5x
2.1x
2.6x
3.4x
2.3x
53.6x
27.6x
29.1x
33.6x
21.3x
31.6%
28.2%
25.2%
23.1%
21.4%
6.6%
7.8%
9.0%
10.2%
10.9%
Cornerstone OnDemand (CSOD)
Workforce Mgmt
17.1x
11.8x
11.0x
11.5x
11.7x
55.2%
51.0%
51.9%
67.0%
63.2%
-27.1% -33.7% -30.9% -24.0% -25.5%
DealerTrack (TRAK)
Vertically Focused
3.1x
2.3x
23.4x
15.4x
16.6%
26.3%
13.1%
Demandware, Inc (DWRE)
Other SaaS
Ebix Inc. (EBIX)
Vertically Focused
3.0x
3.2x
3.1x
18.3x
21.1x
20.1x
37.9%
44.9%
39.2%
14.6x
12.5x
386.9x
553.5x
54.1%
48.7%
4.8%
2.9%
1.5%
3.8%
2.3%
5.7x
4.2x
4.2x
5.3x
4.1x
13.4x
9.7x
9.9x
12.1x
9.3x
29.5%
27.3%
24.6%
27.8%
22.8%
42.9%
42.9%
42.8%
43.5%
43.6%
28.4%
46.4%
1.6x
1.8x
2.2x
4.6x
52.3x
21.6x
Other SaaS
9.0%
15.4%
CRM & Marketing
7.9x
6.0x
40.7%
40.7%
54.5%
-5.1%
-5.1%
-6.0%
-3.3%
-2.1%
Other SaaS
5.9x
2.4x
1.7x
1.7x
1.3x
33.1x
15.7x
13.4x
12.5x
13.9x
34.8%
30.6%
23.8%
15.5%
7.3%
17.8%
15.6%
12.8%
13.9%
Kenexa (KNXA)
Workforce Mgmt
3.2x
2.1x
2.4x
2.4x
2.5x
54.3x
29.2x
30.2x
28.3x
29.8x
36.7%
46.9%
52.4%
44.1%
38.8%
5.9%
7.3%
7.8%
8.5%
8.5%
LivePerson (LPSN)
CRM & Marketing
4.9x
4.4x
4.6x
5.3x
5.8x
23.7x
21.6x
22.8x
25.8x
30.1x
23.7%
21.9%
20.8%
21.1%
21.3%
20.6%
20.5%
20.4%
20.5%
19.2%
Medidata Solutions (MDSO)
Other SaaS
2.9x
1.8x
2.0x
2.3x
3.0x
15.1x
8.2x
9.3x
11.0x
14.6x
17.4%
19.0%
17.9%
10.8%
14.5%
19.1%
21.4%
21.7%
20.4%
20.8%
11.7x
12.9x
12.5x
29.8x
23.3%
19.6%
25.5%
21.1%
21.9%
22.4%
24.6%
8.0%
-7.1%
10.5%
-7.9%
8.6%
15.4%
IntraLinks Holdings (IL)
24.8x
15.3%
ExactTarget, Inc. (ET)
15.6x
16.3%
Ellie Mae (ELLI)
Netsuite (N)
4.2x
15.2%
-7.3%
-7.4%
9.0%
ERP & Supply Chain
10.9x
9.7x
OpenTable, Inc. (OPEN)
Other SaaS
18.5x
11.3x
6.5x
7.3x
5.9x
73.2x
39.9x
23.0x
24.1x
19.8x
50.9%
54.3%
52.3%
40.9%
30.3%
25.2%
28.2%
28.1%
30.2%
29.8%
RealPage (RP)
Vertically Focused
9.2x
6.6x
7.5x
6.2x
4.9x
70.1x
50.8x
63.4x
54.5x
39.8x
36.6%
38.3%
39.8%
37.0%
34.4%
13.1%
13.0%
11.8%
11.3%
12.2%
-6.8%
Responsys (MKTG)
5.2x
2.7x
3.4x
54.1%
43.4%
36.3%
18.0%
18.5%
19.0%
15.7%
16.6%
CRM & Marketing
7.3x
3.4x
40.7x
28.1x
14.0x
21.8x
20.3x
Salesforce.com (CRM)
CRM & Marketing
10.3x
9.0x
7.9x
7.8x
8.2x
133.0x
152.2x
182.8x
166.2x
189.6x
29.6%
33.0%
34.6%
36.8%
37.7%
7.8%
5.9%
4.3%
4.7%
4.3%
SciQuest (SQI)
ERP & Supply Chain
6.3x
5.9x
5.3x
5.0x
5.0x
34.6x
38.3x
38.0x
37.3x
41.5x
19.0%
19.7%
22.0%
25.8%
23.3%
18.2%
15.3%
14.0%
13.5%
12.1%
ServiceNow, Inc. (NOW)
Other SaaS
17.4x
-64.2%
13.7%
13.7%
-2.9%
-6.7%
4.9x
37.6x
The Ultimate Software Group, Inc. (ULTI)
Workforce Mgmt
5.7x
5.1x
6.3x
6.6x
7.0x
72.2x
59.0x
68.7x
66.2x
71.3x
16.5%
16.8%
17.0%
18.2%
19.6%
7.9%
8.6%
9.2%
9.9%
9.9%
Vocus (VOCS)
CRM & Marketing
4.3x
3.1x
2.8x
2.6x
3.0x
956.7x
206.5x
130.0x
285.2x
17.4%
19.1%
18.9%
18.7%
21.0%
-0.4%
0.3%
1.4%
2.0%
1.1%
Zix Corporation (ZIXI)
Other SaaS
3.6x
4.4x
4.8x
47.2x
65.3x
68.7x
68.5x
19.1%
22.5%
26.7%
30.0%
31.6%
8.7%
7.6%
6.7%
6.9%
7.1%
6.0x
5.4x
4.3x
4.6x
3.9x
25.0x
19.8x
14.6x
14.6x
12.5x
30.9%
31.5%
31.7%
15.4%
12.4%
24.0%
27.2%
29.3%
31.3%
31.2%
5.7x
5.1x
4.4x
5.3x
5.0x
40.7x
33.8x
29.7x
33.6x
30.1x
29.2%
27.3%
26.1%
28.4%
30.3%
8.0%
10.5%
9.2%
9.9%
9.9%
Figure 14: Public SaaS Company S&M

Spend as % of Total Revenue
In 2Q12, the median EV/Revenue multiple of the

27 pure-play public SaaS providers comprising
our SEG SaaS Index fell to 5.0x, from 5.3x in
1Q12 (Figure 12). However, it wasnt all bad
news, as over 50% of public SaaS providers
actually maintained or increased their
EV/Revenue QoQ. Leading the pack was Ellie
Mae, closing 2Q12 with a 109% QoQ jump in
EV/Revenue. Ellie Mae is revolutionizing the
mortgage industry with a SaaS based solution
designed to address the litany of inefficiencies
within the mortgage origination process. Even in
the face of declining mortgage volumes, the
Company has managed to accelerate revenue
growth (12.3% to 46.4%) and expand EBITDA
margins (6.6% to 15.4%) over the past three
years.
Four public SaaS companies had EV/Revenue
multiples above 10x at the close of 2Q12:
25.0%
23%
25%
33%
31%
32%
28%
35%
30%
25%
25%
20.0%
20%
15.0%
26.5% 27.1% 25.5%
28.4% 30.3%
20.5%
10.0%
12.1% 13.0%
15%
10%
15.1%
5%
0.0%
S&Mas%ofTotal Revenue
28%
30.0%
5.0%
2Q2012
1Q2012
4Q2011
3Q2011
2Q2011
0%
Q22010

COMPANY MARKET VALUATIONS
33%
35.0%
1Q2011
The steadily improving TTM revenue growth rates

and EBITDA margins of public SaaS providers are
creating a force to be reckoned with, a sizable
and growing group of companies with scale, a
strong financial model, and strong balance
sheets. The median TTM revenue for the SEG
SaaS Index is now $173M, up 29% YoY; median
Cash & Equivalents ended 2Q12 at $96M, up
72% YoY.
Q42010
Median:
3.3x
Q32010
ERP & Supply Chain
TTMRevenueGrowth
SPS Commerce (SPSC)
124.3% 113.8% 113.8%
ServiceNow (17.4x), Demandware (12.5x),

Netsuite (12.5x) and Cornerstone OnDemand
(11.7x). Investors are clearly favoring growth over
profitability in the current market, as three of the
four SaaS providers with the highest market
valuations had negative EBITDA margins; the
fourth, Demandware, reported a paltry 2.3%
EBITDA.
Indeed, there was a clear, causal relationship in
2Q12 between SaaS company market valuations
and TTM revenue growth rates (Figure 15).
Public SaaS companies with TTM revenue growth
rates between 10%-20% registered a median
EV/Revenue of 3.5x, while those generating TTM
revenue growth rates above 40% boasted a
median EV/Revenue multiple of 9.4x. By
contrast, there was very little relationship between
EBITDA margins and public SaaS company
market valuations (Figure 16). As testament,

SaaS providers with negative EBITDA margins
were awarded with a median EV/Revenue
multiple of 6.0x, compared to a median
EV/Revenue of 4.0x for those with EBITDA
margins above 20%.
Vertically Focused SaaS providers posted a

34.4% TTM revenue growth at the close of 2Q12,
the highest among all categories.
DealerTrack, a provider of solutions to the
automotive industry, led the pack with a TTM
revenue growth rate of 39.2%.
Figure 15: SEG SaaS Median EV/Revenue vs.

TTM Revenue Growth
Vertically Focused SaaS providers achieved

EBITDA margins of 15.3% in 2Q12, 55% higher
than the SaaS sector median of 9.9%. Ebix, a
provider of e-commerce solutions to the insurance
industry, earned top honors within the category
with EBITDA margins of 43.6%.
10
9.4x
MedianEV/Revenue
8
7
6
5.0x
4.9x
>20%
<=30%
>30%
<=40%
5
3.5x
4
3
2
No companies
with TTM
Revenue
Growth < =0%
Not enough
data to report
meaningful
median
1
0
<=0%
>0%
<=10%
>10%
<=20%
>40%
TTMRevenueGrowth
Figure 16: SEG SaaS Median EV/Revenue vs.

EBITDA Margins
7.0x
6.0x
MedianEV/Revenue
6.0x
5.9x
4.9x
5.0x
4.0x
4.0x
SaaS companies comprising the ERP & Supply

Chain product category of our SaaS Index
achieved the largest YoY jump in median TTM
revenue growth, driven by a five consecutive
quarters of accelerating growth. SaaS companies
in this category are benefitting from growing
enterprise and SMB acceptance of cloud-based,
remotely hosted applications.

COMPANY MARKET VALUATIONS: BY PRODUCT
CATEGORY
SaaS providers in the ERP & Supply Chain
category finished 2Q12 with the highest median
EV/Revenue multiple, 6.0x. The category was
bolstered by strong performances from Netsuite
(12.5x) and Ariba (7.1x).
3.0x
2.0x
1.0x
0.0x
<=0%
>0%
<=10%
>10%
<=20%
>20%
EBITDAMargins

FINANCIAL PERFORMANCE: BY PRODUCT
CATEGORY
The SEG SaaS Index, consisting of 27 pure play
SaaS providers, now has sufficient critical mass
for us to track four distinct subcategories: CRM &
Marketing, ERP & Supply Chain, Workforce
Management and Vertically Focused providers
(Figure 17).
Public SaaS companies in the Workforce

Management category improved their median
EV/Revenue multiple in 2Q12, to 4.8x. Ultimate
Software Group led the pack, boosting its YoY
EV/Rev an impressive 22.8%. The categorys
relative strength was driven, at least in part, by
investor hopes of capitalizing on the wave of
consolidation in the SaaS WFM arena.
PUBLIC INTERNET COMPANY FINANCIAL

PERFORMANCE
The median TTM revenue of SEG Internet Index
companies grew an impressive 27.4% in 2Q12,
41% higher than 2Q11 (Figure 18). Among
SEGs three tracking indices, companies
comprising our Internet Index have the highest
median TTM revenue ($394.7 million), making
their median revenue growth in 2Q12 all the more
impressive.
Figure 17: SEG SaaS Index Median Metrics by Product Category

SEG SaaS Index
EV/Revenue
Category
EV/EBITDA
TTM Revenue Growth
EBITDA Margin
2Q11
3Q11
4Q11
1Q12
2Q12
2Q11
3Q11
4Q11
1Q12
2Q12
2Q11
3Q11
4Q11
1Q12
2Q12
2Q11
3Q11
4Q11
1Q12
2Q12
CRM & Marketing
4.9x
4.4x
2.8x
4.4x
4.6x
47.1x
28.1x
29.1x
33.6x
30.1x
29.6%
28.2%
25.2%
29.9%
21.4%
7.2%
6.9%
6.7%
7.5%
7.6%
ERP & Supply Chain
6.9x
6.0x
5.7x
5.3x
6.0x
37.6x
47.2x
65.3x
68.7x
68.5x
19.1%
21.8%
24.3%
27.9%
28.1%
8.0%
7.4%
6.9%
7.1%
7.6%
Vertically Focused
5.6x
5.4x
5.2x
5.7x
4.5x
30.3x
27.8x
27.3x
33.4x
29.9x
29.3%
28.9%
34.2%
34.5%
34.4%
14.0%
16.1%
16.7%
15.2%
15.3%
Workforce Management
Median:
4.5x
3.6x
4.3x
4.7x
4.8x
63.3x
44.1x
49.4x
47.2x
50.6x
26.6%
32.3%
35.7%
31.1%
29.2%
1.2%
1.9%
1.1%
0.7%
-0.9%
5.7x
5.1x
4.4x
5.3x
5.0x
40.7x
33.8x
29.7x
33.6x
30.1x
29.2%
27.3%
26.1%
28.4%
30.3%
8.0%
10.5%
9.2%
9.9%
9.9%
By comparison, public software companies had

median TTM revenue of $365.1 million in 2Q12,
but a considerably lower TTM revenue growth
rate of 15.5%.
Of the 19 public Internet companies with TTM
revenue of $1 billion or more, nearly two-thirds
grew TTM revenue by more than 20% in 2Q12.
Q2s top Internet performers spanned an array of
Internet categories, including eCommerce
(Amazon, eBay), Search (Google, Baidu), Gaming
(Tencent, Zynga), Travel (Priceline, Expedia)
Social Networks (Facebook) and Lead Gen
(Groupon).
As for profitability, the median EBITDA margin of

public Internet companies continued to decline in
2Q12, closing the quarter at 13.5%, after reaching
a historic high in 1Q11 of 16.8%. The declining
profitability is primarily attributable to higher sales
and marketing expenses to drive market adoption.
It was a strategy that worked, for some: Jive
Software is a good example, which publicly listed
in 2011, posted 64% TTM revenue growth, but a
-45% EBITDA margin in 2Q12.
Figure 19: SEG Internet Index Revenue
Growth Distribution
250%
At the other end of the spectrum, ten SEG

Internet providers posted negative revenue
growth, led by Yahoo (-16.4%), Mecox (-9.0%),
eHealth (-7.3%) and AOL (-5.2).
Figure 18: SEG Internet Index Median Metrics

SEG - Internet: Median Metrics
Measure
2Q11
3Q11
4Q11
1Q12
EV/Revenue
3.2x
2.7x
2.5x
2.3x
EV/EBITDA
18.7x
13.8x
12.3x
13.1x
EV/Earnings
34.0x
28.1x
22.2x
26.5x
Current Ratio
2.5
2.7
2.6
2.4
Cash & Eq ($M)
$114.2 $135.9 $152.1 $152.1
Gross Profit Margin
67.0% 66.3% 66.9% 67.5%
EBITDA Margin
15.1% 14.7% 14.8% 13.7%
Net Income Margin
4.4%
4.4%
3.8%
4.5%
TTM Revenue Growth
19.5% 21.2% 26.0% 29.8%
$319.2 $345.4 $375.7 $393.6
$43.7
$51.7 $54.3 $56.9
Debt / Equity Ratio
10.6% 11.8% 18.2% 13.7%
2Q12
2.3x
12.5x
24.0x
2.5
$155.4
67.5%
13.5%
4.9%
27.4%
$394.7
$52.8
13.4%
200%
TTMRevenueGrowth
Nevertheless, growth disparities among public

Internet providers abounded in Q2; the SEG
Internet index has the widest variance of revenue
growth rates among our three tracking indices
(Figure 19). Five public Internet companies
achieved TTM revenue growth at or above 100%
in 2Q12, including Groupon (232.2%), Qihoo
(201.7%), Youku (123%), Zillow (113.3%), and
LinkedIn (111.1%).
150%
100%
50%
Median: 27.4%
0%
50%
Nevertheless, the SEG Internet Index includes a

good number of companies that are highly
profitable. One out of eight public Internet
companies achieved EBITDA margins of 40% or
greater, including ChangYou.com (65.7%), Baidu
(58.5%), Facebook (53.4%), Netease (50.2%) and
TripAdvisor (45.6%).
Though EBITDA margins may have declined, the
surge in revenue enabled many Internet
companies to boost their cash reserves. By the
close of the second quarter, the median Cash &
Equivalents of companies comprising the SEG
Internet Index was $155.4M, up 36% from 2Q11
(Figure 18).
Figure 20: SEG Internet Valuation by Size (TTM Revenue)

SEG Internet Index Companies
EV/Revenue
2Q11
3.6x
3.5x
3.2x
1.4x
Revenue Greater Than $1 billion

Revenue Between $200 million and $1 billion
Revenue Between $100 million and $200 million
Revenue Less Than $100 million
3Q11
2.7x
2.6x
2.6x
2.2x
4Q11
3.4x
2.4x
2.1x
2.3x
EV/EBITDA
1Q12 2Q12 2Q11 3Q11 4Q11 1Q12

3.4x 3.3x 13.1x 17.5x 16.7x 18.5x
2.2x 1.8x 14.5x 12.2x 10.9x 11.6x
2.5x 2.2x 12.7x 8.7x 7.9x 9.2x
2.3x 3.1x 19.6x 18.9x 16.0x 16.3x
PUBLIC INTERNET COMPANY MARKET

VALUATIONS
The median EV/Revenue multiple for the 87
public companies comprising the SEG Internet
Index was 2.3x in 2Q12, the same as in Q1, but
down 30% YoY from 2Q11s 3.2x (Figure 18).
In contrast to the YoY decline in the broader
index, Internet companies with revenue under
$100 million saw their median EV/Revenue
multiples climb 121% over the past year (Figure
20).
2Q12
21.1x
10.2x
7.1x
18.5x
Revenue Growth
2Q12 (TTM)
30.3%
26.4%
30.4%
16.1%
But unlike SaaS investors who seemed indifferent

to profitability (Figure 16), Internet investors paid
great attention to the bottom line in 2Q12. Public
Internet companies with EBITDA margins greater
than 40% in 2Q12 were rewarded with a premium
median market valuation of 8.7x, while those with
0% - 10% EBITDA margins were punished with a
median 1.0x EV/Revenue multiple (Figure 22).
Figure 22: SEG Internet Median EV/Revenue vs.
EBITDA Margin
10.0x
8.7x
9.0x
8.0x
MedianEV/Revenue
Investors clearly favored public Internet

companies with above average TTM revenue
growth. As testament, companies in the SEG
Internet Index with TTM revenue growth rates
above 40% were rewarded with a median 5.3x
EV/Revenue multiple, while those with negative
TTM revenue growth rates had a median market
valuation of 1.0x (Figure 21).
EBITDA Margin
2Q12 (TTM)
18.9%
17.7%
8.1%
-6.6%
7.0x
6.0x
5.0x
4.4x
3.7x
4.0x
3.1x
3.0x
2.0x
1.0x
1.3x
1.0x
0.0x
Figure 21: SEG Internet Median EV/Revenue vs.

TTM Revenue Growth
<=0%
>0%
<=10%
>10%
<=20%
>20%
<=30%
>30%
<=40%
>40%
<=50%
EBITDAMargins
6.0x
5.3x
MedianEV/Revenue
5.0x
3.9x
4.0x
3.0x
2.4x
2.0x
1.6x
1.0x
0.9x
<=0%
>0%
<=10%
1.0x
0.0x
>10%
<=20%
>20%
<=30%
>30%
<=40%
>40%
TTMRevenueGrowth
Investors found unprofitable but rapidly growing

public Internet companies to be as appealing as
their SaaS brethren. Internet providers with
negative EBITDA margins at the close of 2Q12
had a whopping median EV/Revenue multiple of
4.4x, thanks to a stellar median TTM revenue
growth rate of 67.4% (Figure 22).
PUBLIC INTERNET COMPANY FINANCIAL

PERFORMANCE: BY PRODUCT CATEGORY
Compelled by market forces to scale rapidly, then
monetize, the Social product category racked up
the highest median TTM revenue growth rate
(64.2%) among all Internet companies in Q2
(Figure 23). All six companies within this category
grew TTM revenue at a rate that was at least
twice that of the median growth rate for all Internet
companies in the second quarter: LinkedIn
(111.1% TTM revenue growth), Facebook
(88.3%), Mail.ru Group (84.0%), Yelp (75.4%),
Jive (64.3%) and Renren (56.4%).
Four other product categories finished 2Q12 with
TTM revenue growth rates above the Internet
sector median: Services (57.8%), Ad Tech & Lead
Gen (37.5%), Gaming (33.5%) and Travel
(26.7%).
Figure 23: SEG Internet Index Median Metrics by Product Category

SEG - Internet Index
EV/Revenue
Ad Tech & Lead Gen

Commerce
Content & Media
Gaming
Infrastructure
Services
Social
Travel
Median:
4Q11
11.9x
13.0x
10.6x
6.0x
12.9x
16.7x
47.7x
14.1x
1Q12
14.1x
16.6x
10.5x
4.2x
14.1x
17.0x
33.5x
15.0x
2Q12
11.4x
18.8x
10.1x
4.0x
16.2x
15.2x
33.0x
15.5x
Revenue
Growth
(TTM)
2Q12
37.5%
17.5%
18.9%
33.5%
18.1%
57.8%
64.2%
26.7%
12.2x
13.1x
12.4x
27.4%
EV/EBITDA
2Q11
3.3x
1.9x
3.4x
4.4x
3.0x
4.9x
22.6x
7.3x
3Q11
2.6x
1.4x
2.7x
4.7x
2.6x
4.5x
19.9x
5.0x
4Q11
2.6x
1.1x
2.2x
3.1x
1.7x
3.2x
12.4x
5.4x
1Q12
3.0x
0.9x
2.0x
3.2x
1.9x
2.6x
13.5x
4.7x
3.3x
2.7x
2.5x
2.3x
2Q12 2Q11 3Q11

2.3x 10.9x 11.1x
0.7x
19.2x 13.7x
1.7x 18.2x 11.0x
3.1x
9.8x
8.0x
1.8x 19.2x 17.0x
2.4x 21.8x 16.3x
12.9x 136.9x 114.3x
3.1x 32.6x 23.4x
2.3x
18.7x
The Services product category, the best

performer of the four, was boosted by strong TTM
revenue growth from Qihoo (202.1%), Angies List
(64.5%), Shutterfly (58.9%) and Bankrate
(57.8%). Companies within the Ad Tech & Lead
Gen category continued to benefit from the
dramatic growth in advertising dollars migrating
from offline to online, as well as from increased
spending on lead generation services. Notable
examples in this category include Groupon
(232.2% TTM revenue growth), LinkedIn (111.1%)
and Baidu (80.3%).
Gaming arguably turned in the best overall
financial performance among all Internet
categories in Q2, posting an impressive 33.5%
median revenue growth rate and a noteworthy
median EBITDA margin of 44.5%. All but Zynga
posted EBITDA margins above 38%, aided by
lower customer acquisition costs and the viral
nature of online gaming. The product categorys
median EBITDA margin was more than twice that
of the runner up, Travel (21.7%).
Commerce category posted a median EBITDA
margin of 8.3% in 2Q12, the lowest of all Internet
product categories. The profitability of Internet
eCommerce providers has historically lagged
other categories due to the significant revenue
sharing inherent in their business model.
As testament, Amazon posted an EBITDA margin
of 3.6% in 2Q12.
By contrast, eCommerce providers with business
models that eschew inventory management,
logistics and distribution expenses were able to
achieve considerably higher levels of profitability.
As example, eBay generated EBITDA margins of
28.2% in the second quarter.
13.7x
EBITDA
Growth
(TTM)
2Q12
36.9%
6.5%
-6.9%
28.7%
21.8%
44.5%
-33.8%
16.5%
EBTIDA
Margin
(TTM)
2Q12
14.0%
8.3%
13.3%
45.5%
10.9%
11.9%
12.9%
21.7%
YTD
Stock
Return
2012
-1.1%
10.7%
7.0%
-4.3%
-1.6%
10.2%
30.7%
-4.7%
21.4%
13.5%
4.3%
PUBLIC INTERNET COMPANY MARKET

VALUATIONS: BY PRODUCT CATEGORY
The public market valuations of companies
comprising the SEG Internet Index varied widely
by Internet category in 2Q12 (Figure 23). Social
Media led the pack, closing 2Q12 with a median
EV/Revenue multiple of 12.9x, while Commerce
brought up the rear with a paltry 0.7x.
In a sharp contrast with last quarter, revenue
growth and EV/Revenue market valuations were
not as linked in Q2 (Figure 24). Companies in the
Internet Services category grew TTM revenue
57.8%, yet finished 2Q12 with a relatively modest
EV/Revenue multiple of 2.4x.
By contrast, companies in the Internet Travel
category grew TTM revenue 26.7% - less than
half the Service categorys growth rate - but
posted a median EV/Revenue multiple of 3.1x.
Figure 24: SEG Internet Index Product Category

Median EV/Revenue vs. TTM Revenue Growth
14.0x
8
12.0x
MedianEV/Revenue
Category
10.0x
8.0x
6.0x
4.0x
5
6
2 3
2.0x
0.0x
0%
10%
20%
30%
40%
50%
60%
70%
TTMRevenueGrowth
1.
2.
3.
4.
5.
Commerce
Infrastructure
Content & Media
Travel
Gaming
6.
7.
8.
Ad Tech & Lead Gen

Services
Social
The highest Internet category market valuations in

Q2, however, were reserved for companies
comprising the Social Media category, which
racked up a median EV/Revenue multiple of
12.9x - nearly six times higher than the overall
Internet median of 2.3x. Companies with market
valuations exceeding the median Internet
EV/Revenue multiple included Facebook (15.7x),
Mail.ru Group (14.8x), Yelp (12.4x) and Renren
(8.3x).
Americas eBay, was boosted by investors

enamored with emerging markets and the
companys 36% TTM revenue growth rate in
2Q12.
INITIAL PUBLIC OFFERINGS

After an impressive start in the first quarter when
eleven software/SaaS/Internet companies went
public, the software IPO market slowed markedly
Q2 with only five newly listed companies (Figure
25). Still, 2H12s tally of sixteen IPOs exceeds
last years first half count of thirteen, and is
notably higher than 2010s first half count of five.
The Social Media categorys stellar 12.9x median

EV/Revenue multiple, however, represents a 43%
YoY decline drop from the breathtaking median
22.9x EV/Revenue multiple these companies
enjoyed in 2Q11. The Facebook IPO debacle and
doubts about the future growth prospects of
Facebook and others have unquestionably
dampened investor enthusiasm for Social Media
providers.
Collectively, the sixteen newly listed companies

touted a median TTM revenue growth rate of
54.3% and a median TTM EBITDA margin of
1.8%. In aggregate, they raised over $8.2 billion,
ranging individually from $25.2 million to $6.7
billion.
Investors seemed wholly disinterested in Internet

Commerce providers in the second quarter. The
group closed 2Q12 with a median 0.7x
EV/Revenue multiple, by far the lowest of our
Internet categories. Lackluster revenue growth,
well below the Internet median, is surely to blame
here. The notable exception was Mercardolibre,
which posted a median EV/Revenue multiple of
10.0x, over fourteen times the Commerce
category median for 2Q12. Mercardolibre, Latin
Q2s new public entrants rewarded investors with

median YTD stock gain of 37.9% by close of
quarter, although some fared better than others.
The best YTD performer was Synacor, a provider
of digital video delivery solutions, which posted a
174.0% gain. By contrast, Envivio, a provider of
video processing solutions, dropped 28.8% since
its IPO.
Figure 25: U.S. Software, SaaS and Internet IPOs in 2012

Company (Ticker)
ServiceNow, Inc.
(NYSE:NOW)
Facebook, Inc.
(NASDAQ:FB)
Envivio Inc.
(NASDAQ:ENVI)
Proofpoint, Inc.
(NASDAQ:PFPT)
Splunk, Inc.
(NASDAQ:SPLK)
Millennial Media, Inc.

(NYSE:MM)
ExactTarget, Inc.
(NYSE:ET)
Demandware, Inc.
(NYSE:DWRE)
Yelp, Inc.
(NYSE:YELP)
Bazaarvoice, Inc.
(NASDAQ:BV)
Brightcove, Inc.
(NASDAQ:BCOV)
Synacor, Inc.
(NASDAQ:SYNC)
FX Alliance, Inc.
(NYSE:FX)
AVG Technologies, Inc.

(NYSE:AVG)
Greenway Medical Technologies,

Inc.
Guidewire Software, Inc.
(NASDAQ:GWRE)
Category
IPO Date
Net Proceeds
Enterprise Value
EV / Rev
EV /
EBITDA
Revenue
Revenue
Growth
EBITDA
Margin
First Day
YTD Return
Return
Systems Management
6/28/12
$195,021,000
$2,859,000,000
16.9x
n/a
$168,969,000
113.0%
(6.7%)
32.2%
36.7%
Internet - Social
5/18/12
$6,700,000,000
$78,538,839,520
19.4x
36.9x
$4,038,000,000
88.0%
52.8%
0.6%
(18.2%)
(28.8%)
Internet - Infrastructure
4/25/12
$64,909,350
$199,919,110
3.9x
90.3x
$50,646,000
68.8%
4.4%
(5.7%)
Security
4/20/12
$59,800,000
$409,851,640
4.7x
n/a
$87,676,000
26.3%
(12.5%)
8.3%
30.4%
Storage, Data
Management & Integration
4/19/12
$213,435,000
$3,296,700,400
27.3x
n/a
$120,960,000
82.6%
(5.2%)
108.7%
65.3%
3/29/12
$123,318,000
$1,855,543,000
17.9x
n/a
$103,678,000
116.8%
(0.1%)
92.3%
1.5%
SaaS - CRM & Marketing
3/22/12
$161,500,000
$1,571,645,470
7.6x
n/a
$207,493,000
54.5%
(3.3%)
32.2%
15.1%
SaaS - Other
3/15/12
$81,840,000
$737,949,470
13.1x
346.8x
$56,547,000
54.1%
3.8%
47.4%
48.1%
3/2/12
$99,742,500
$1,449,946,790
17.4x
n/a
$83,285,000
74.5%
(8.5%)
63.9%
51.5%
SaaS - Other
2/24/12
$105,844,740
$950,055,560
10.1x
n/a
$93,986,000
64.6%
(20.4%)
37.6%
51.7%
2/17/12
$51,150,000
$368,043,500
5.8x
n/a
$63,563,000
45.4%
(22.1%)
30.0%
39.2%
174.0%
Internet - Social
2/13/12
$25,200,000
$127,286,620
1.4x
19.0x
$91,060,000
37.5%
7.4%
2.8%
Vertical - Finance
2/9/12
$58,032,000
$270,796,960
2.3x
5.9x
$118,265,000
19.4%
39.0%
14.5%
30.9%
Security
2/3/12
$119,040,000
$1,055,689,120
3.9x
12.6x
$272,392,000
25.4%
30.7%
(18.2%)
(18.7%)
2/2/12
$62,000,000
$348,719,740
3.3x
63.4x
$105,784,180
45.3%
5.2%
30.0%
63.1%
1/25/12
$106,996,500
$842,377,160
4.4x
32.5x
$190,182,000
28.8%
13.6%
31.7%
116.3%
$102,793,620
$896,216,360
6.7x
34.7x
$104,731,090
54.3%
1.8%
30.8%
37.9%
Healthcare
Vertical - Other
Median
Financial data is the latest available from CapIQ on offering date.
First day return compares listed offering price to first day close.
Why such disparate shareholder returns among

two companies in the same niche product
category? As the market reacted to global
economic concerns in Q2, investors opted for the
larger, albeit slower growing, more value priced
Synacor over the smaller, faster growing, more
volatile - and considerably more expensive
(EV/Revenue) - Envivio.
Many of 2H12s IPOs had strong first day
performances, indicating investors found them to
be appropriately priced with good upside. Splunk,
a provider of IT infrastructure intelligence, saw its
initial offering price soar 108.7% by the close of
trading. Other stocks which posted stellar first
day returns in the first half of the year included
Millennial Media (92.3%), Yelp (63.9%),
Demandware (47.4%), Bazaarvoice (37.6%),
ServiceNow (32.2%) and ExactTarget (32.2%).
The much anticipated Facebook IPO proved to be
a disaster, marred by last minute overpricing,
NASDAQ trading delays, and warnings from
analysts of some Facebook underwriters that may
have been communicated to select clients prior to
the first day of trading. In the aftermath,
disgruntled investors have filed lawsuits, and
investors are questioning the lofty valuations and
future prospects of not only Facebook, but much
of the Internet sector.
At the close of Q2, Facebooks stock was down
18.2%, but the company was still trading at a
rather lofty EV/Revenue multiple of 15.7x, which
is likely unsustainable if earnings falter or
Facebook is unable to quickly improve and
monetize its mobile offerings.
The aftershock from Facebooks botched IPO
ruined investor appetite for newly public tech
companies and shut down the software IPO
market down for nearly five weeks. Near the
close of Q2, however, ServiceNow, a SaaS
provider of enterprise IT management software,
joined the ranks of public companies and closed
up 32.2% its first day. It seems sidelined
investors just couldnt resist ServiceNows 113%
TTM revenue growth rate and ~85% recurring
revenue.
Figure 26: U.S. Software Mergers & Acquisition Activity

500
$25
453
450
431
407
400
421
430
426
383
372
453
423
$23.7
$21.3
422
$21.3
$20
$17.3
350
330
$17.9
$13.5
$16.1
$12.7
$15
$13.1
250
$12.8
200
$10
$7.6
Value(BIllions)
NumberofDeals
311
300
150
100
$4.6
$5
$3.3
50
0
$0
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
Deals
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
Value
SOFTWARE/SAAS M&A DEAL VOLUME AND SPENDING

As we went to press, 422 software industry M&A
transactions were reported in the second quarter
(Figure 26). We expect the final tally for 2Q12 to
reach 430, since M&A data for the quarter is often
revised and released well into the following
quarter. Indeed, the updated tally for 1Q12 was
423 software/SaaS transactions, significantly
greater than the 401 deals initially referenced in
our first quarter report. If our projection holds
true, 2Q12 deal volume will likely equal or exceed
2Q11s 430 deals. The quarterly software/SaaS
M&A tally has now surpassed 400 - the historical
benchmark for healthy software M&A volume - for
eight straight quarters.
For those 2Q12 software/SaaS transactions with
announced price tags, the aggregate purchase
price was $21.3 billion, 32% higher than 1Q12s
$16.1 billion, and the second highest quarterly
software M&A spend since 1Q09. Software and
SaaS mega deals (i.e., > $500 million) were
mostly responsible for the sharp increase.
Software/SaaS mega deals in the second quarter
included SAPs acquisition of Ariba ($4.4 billion
EV, 8.8x TTM revenue); Dells acquisition of

Quest Software ($2.2 billion EV, 2.6x TTM
revenue); Microsofts acquisition of Yammer ($1.2
billion EV); and Apax Partners acquisition of
Paradigm ($1 billion EV).
It remains to be seen whether the second
quarters private equity-backed mega deal signals
a broader return by PE firms to large buyouts.
And its worth noting 2Q12 marked the third
consecutive quarter of at least one SaaS mega
deal, evidence that SaaS market adoption
continues to grow and SaaS companies are
achieving sufficient critical mass to attract the
software industrys largest public companies.
On a TTM basis, which presents a more reliable
trend line of software M&A spending, the
aggregate software/SaaS M&A price tag is
holding steady, despite the ongoing uncertainty
about the broader economy. As of the close of
the second quarter, $73.9 billion was expended
on software/SaaS transaction dollars during the
prior twelve months, the identical amount spent
during the twelve month period ending 1Q11.
The average deal size, after a period of rapid

growth, began to level off in 4Q11, and continued
to grow only modestly through the 2Q12 when the
TTM average deal size was $42.2 million, a
modest 5.5% YoY increase (Figure 27).
Figure 28: Median Software M&A Valuation as a

Multiple of Revenue (top) and EBITDA (bottom)
2.5x
2.2x
1.8x
1.9x
1.7x
4Q11
1Q12
2Q12
Figure 27: TTM Average M&A Deal Size

TTMAverageDealValue(Millions)
$45.0
$40
$40.0
$35.0
$28
$30.0
2Q11
3Q11
$31
$33
14.7x
$25.0
$20.0
$42 $41 $42 $42
$37
13.4x
$20 $20 $20
13.4x
12.2x
12.1x
1Q12
2Q12
$16
$15.0
$10.0
$5.0
2Q12
1Q12
4Q11
3Q11
2Q11
1Q11
4Q10
3Q10
2Q10
1Q10
4Q09
3Q09
2Q09
$0.0
IMPORTANT CHANGE IN SOFTWARE AND SAAS

M&A DATA ACCOUNTING
Historically, we aggregated M&A data for both onpremise and SaaS software company
transactions because of the relative dearth of
pure-play SaaS deals. We noted, though, the
considerably higher median multiple of these
SaaS deals tended to skew the median M&A
multiple higher. Since SaaS is no longer a
nascent part of the overall software M&A
ecosystem, and SaaS transactions now constitute
a meaningful percentage of total software M&A,
we began in 3Q11 to analyze and separately
report M&A data for SaaS and on-premise
software deals. To ensure our historical and
current comparisons are consistent, all historical
M&A data referenced in our charts this issue has
been recalculated to exclude SaaS M&A
transactions.
2Q11
The software industrys benchmark median exit

multiple inched down to 1.7x TTM revenue in
2Q12 from 1.9x in 1Q12 (Figure 28). While the
exit multiple is somewhat below the software
industrys ten year average of 2.0x TTM revenue,
quarterly exit multiples tend to fluctuate
considerably quarter-to-quarter.
4Q11
Despite Q2s relatively unimpressive median TTM

exit multiple, its important to note that 29.2% of
software/SaaS M&A transactions in the past
twelve months with ascertainable exit multiples
had an EV/Revenue multiple of 3.0 or greater
(Figure 29). Indeed, in the second quarter, 8.3%
of M&A deals with ascertainable exit multiples had
an exit multiple of 5.0x or greater, suggesting that
in the current deal environment, software/SaaS
M&A is increasingly comprised of two seller types,
the haves (i.e., those deemed by buyers to be
highly strategic) and the have nots.
Figure 29: 2Q12 Median Software M&A
EV/Revenue Multiple Distribution
60.0%
50.0%
50.0%
40.0%
30.0%
20.0%
SOFTWARE M&A VALUATIONS
3Q11
16.7%
12.5%
8.3%
10.0%
8.3%
4.2%
0.0%
<=1.0x
>1.0x&
<=2.0x
>2.0x&
<=3.0x
>3.0x&
<=4.0x
>4.0x&
<=5.0x
>5.0x
Among Q2s transactions with the highest exit

multiples were Equinixs acquisition of ancotel ($
140 million, 6.5x TTM Revenue); Bazaarvoices
acquisition of PowerReviews ($127.8 million EV,
11.1x TTM revenue); Intuits acquisition of
Demandforce ($423.5 million EV, estimated 11.3x

TTM revenue); and Zillows purchase of
RentJuice Corporation ($37.4 million EV, 102.4x
TTM revenue).
The largest SaaS deal of the quarter was SAPs
acquisition of Ariba ($4.4B EV, 8.8x TTM
Revenue), a leading provider of collaborative
business solutions for buying and selling goods
and services. The acquisition follows on the heels
of SAPs blockbuster acquisition of
SuccessFactors in 4Q11 ($3.5B EV, 12.0x TTM
Revenue). All told, SAP has spent over $8 billion
on SaaS mega deals in the past six months.
Since very few software transactions publicly
disclose a private software sellers TTM EBITDA,
we lacked sufficient data to ascertain the median
EBITDA exit multiple paid in 2Q12 for private
software company sellers (Figure 28). We did,
however, determine 2Q12s median exit multiple
for public software company sellers was 12.1x
TTM EBITDA, a tick down from 1Q12s 12.2x
TTM EBITDA exit multiple.
SOFTWARE M&A VALUATIONS BY EQUITY

STRUCTURE
While a variety of factors impact exit valuation,
one important driver is the sellers equity
structure. We separated public and private
software company buyers to ascertain any
difference in median purchase price paid in 2Q12.
Historically, public buyers have paid higher exit
multiples than private buyers: 2.5x vs. 2.0x TTM
revenue in 2007; 2.0x vs.1.7x in 2008; 1.9x
vs.1.2x in 2009; 2.4x vs.1.8x in 2010, and 2.4x vs.
2.0x in 2011. That trend continued in 2Q12 as
public buyers paid a median 2.5x TTM revenue,
while private buyers paid only 1.3x TTM revenue
(Figure 30). The significant premium paid by
public buyers can be attributed, at least in part, to
the sizable amounts of cash on their balance
sheets; their preference for larger targets that
typically yield a higher multiple; and the greater
inclination of public buyers to pursue strategic
transactions, while private buyers are often more
inclined toward financial transactions.
Figure 30: 2Q12 Median EV/Revenue

Exit Multiple by Ownership Structure
SOFTWARE M&A VALUATIONS BY SIZE
Another key driver of exit multiples is size of

both buyer and seller. As testament, in 2Q12,
buyers with TTM revenue greater than $200
million paid a median EV/Revenue multiple of
2.8x, while buyers with TTM revenue less than
$200 million paid only 1.4x TTM revenue (Figure
31).
Public Sellers
1.4x Median Multiple
32%
68%
Private Sellers
Figure 31: 2Q12 Median EV/Revenue Exit

Multiple by Size
Buyer Greater
Than $200 million
2.8x Median
Multiple
Private Buyers
Buyer Less Than

$200 million
1.4x Median
Multiple
28%
72%
44%
56%
Public Buyers
Seller Greater
Than $20
million: 2.7x
0.8x
Seller Greater
Than $20
million: 1.3x
1.5x
Seller Less
Than $20
million: 4.5x
2.0x
Seller Less
Than $20
million: 1.6x
2.4x
Equally noteworthy - sellers with less than $20

million TTM revenue received a median
EV/Revenue multiple of 4.5x from buyers with
$200 million of revenue or more, while sellers with
greater than $20 million TTM revenue were paid a
median exit valuation of 2.7x.
Why? A rapidly growing smaller company will
often deem an exit premature and spurn
advances by a strategic acquirer, prompting the
larger suitor to raise the bid. Case in point:
PowerReviews, a small but highly respected
social commerce network which enables brands
and retailers to organize and manage consumer
insights to drive sales, was highly complementary
with Bazaarvoices existing business and was
gobbled up for 11.1x TTM revenue.
SOFTWARE M&A BY VERTICAL AND HORIZONTAL

MARKETS
Another important determinant of exit valuation is
the sellers market focus and related domain
expertise. We analyzed 2Q12s median software
M&A multiple horizontally and vertically,
segregating software company sellers with
vertical market solutions (e.g. retail, financial
services, telecom, manufacturing, etc.) from
sellers with horizontal software solutions
(infrastructure, enterprise applications, etc.).
Figure 32: 2Q12 M&A Volume by Vertical
RealEstate
3.6%
Retail
0.9%
Utilities
3.6%
revenue, deep domain expertise, and highly

defensible market positions. The most active
verticals in 2Q12 were Healthcare and Financial
Services, garnering 25.5% and 23.6%,
respectively (Figure 32).
Both verticals continued to see heightened deal
activity, mostly due to regulatory changes,
growing governmental scrutiny, and evolving
market conditions. The Education vertical
accounted for 10.9% of 2Q12s deal total, driven
by high demand for software solutions that
address demands for greater accountability and
leverage more cost-effective learning.
Vertical software companies have been in
growing demand since 4Q11 (Figure 33). Vertical
targets accounted for 30% of total M&A
transactions in 4Q11, 32% in 1Q12 and, as noted,
35% in 2Q12. The median EV/Revenue exit
multiple of these vertical targets has nearly
doubled over the same time period, growing from
1.0x in 4Q11 to 1.9x in 2Q12 (Figure 34).
Figure 33: Horizontal & Vertical M&A Volume
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
37%
37%
30%
32%
35%
63%
63%
70%
68%
65%
2Q11
3Q11
4Q11
1Q12
2Q12
Automotive
0.9%
Vertical
Horizontal
Education
10.9%
PublicSector
4.5%
Figure 34: Horizontal & Vertical M&A Median

EV/Revenue Exit Multiples
OtherVerticals
17.3%
FinancialServices
23.6%
3.5x
3.0x
3.0x
Oil&Gas
6.4%
2.5x
2.0x
Manufacturing
0.9%
Legal
0.9%
Hospitality
0.9%
Healthcare
25.5%
2.3x
2.0x 1.9x
1.9x
1.6x
1.3x
1.5x
1.0x
1.0x
0.5x
0.0x
3Q11
In 2Q12, providers of vertical software accounted

for 35% of all software M&A, confirming vertical
providers remain attractive acquisition targets
primarily because of their predictable recurring
4Q11
Vertical
1Q12
2Q12
Horizontal

Other software product categories with median
EV/Revenue multiples significantly above the
general software median of 2.5x in 2Q12 were
Mobile (2.8x), Multimedia, Graphics and Digital
Media (2.5x), CRM (2.4x), Healthcare (2.4x) and
BI, Risk and Compliance (2.4x). Software product
categories lagging the general software median
include Supply Chain Mgmt (1.2x) and Other
Verticals (1.4x).
SOFTWARE M&A BY PRODUCT CATEGORY

We begin this section with two fundamental truths:
First, while such factors as revenue growth, equity
structure and delivery model can demonstrably
impact a software companys exit valuation, the
nature of it product offering its software product
category is the single most important M&A
valuation driver. Second, product category
median exit valuations are highly volatile, often
highly dependent on market adoption, and
fluctuate greatly from year to year. Each premise
continued to hold true in 2Q12.
From the standpoint of deal activity, the Mobile

product category led all others by far, accounting
for 22.5% of 2Q12s transactions (Figure 36).
Other active M&A categories this quarter
included: Multimedia, Graphics and Digital Media
(4.5%), Engineering, PLM and CAD/CAM (3.2%)
Development Tools & Application Testing (3.2%)
and Networking & Network Performance Mgmt
(2.6%). The breadth of M&A product categories
with transactions in the second quarter speaks to
the current vibrancy of the software M&A market.
For most software product categories, there is

often an insufficient number of transactions each
quarter that publicly report both seller TTM
revenue and buyer purchase price, essential in
determining the median exit value for the
category. Consequently, we aggregate the data
each quarter for each category on a TTM basis.
As a result, it may take several quarters to detect
changing product category valuation trends, as
certain outlier transactions consummated nine or
twelve months ago may have a residual impact on
their product category multiples.
The second quarter marks the first time the

mobile category has not only led in M&A volume,
but also in median EV/Revenue exit multiple.
With the exception of a few headline grabbing
deals, the mobile category has been historically
characterized by a large number of transactions
involving small, private companies that were
unable to command a significant exit premium.
While 2Q12s results suggest the fortunes of
mobile targets may be changing, its important to
note mobile deal structures frequently include
stock, earnouts and other contingencies that put
reported transaction values at high risk. For a
detailed overview on mobile M&A, see our blog:
http://softwareequitygroup.wordpress.com/2012/0
7/19/what-you-need-to-know-about-mobile-q2update-ma-snapshot-hot-companies-and-productcategories-deal-structures-and-more/
Among the 32 product categories we tracked in

2Q12, eleven had both sufficient deal activity and
deal data to ascertain a TTM revenue multiple
(Figure 35). Software company sellers that were
focused on Network Performance Management
garnered the highest median TTM revenue
multiple, 7.5x, nearly 3x higher than the second
highest category. Sellers within this product
category are benefitting from the accelerating shift
to cloud and mobile computing, which are
transforming the IT infrastructures of both large
enterprises and SMBs.
Figure 35: Median EV/Revenue Multiple by Software Product Category
1.4x
1.2x
Supply Chain
Mgmt
1.9x
Manufacturing &
Asset Mgmt
2.0x
Financial Services
Software
2.1x
Content, Document
& Business
Process Mgmt
2.4x
BI, Risk and

Compliance
2.4x
Healthcare
2.4x
CRM
2.5x
Multimedia,
Graphics, Digital
Media
Mobile
Network
Performance Mgmt
2.8x
Other Verticals
(A&D, Telco,
Retail, etc.)
7.5x
Figure 36: Software M&A by Product Category

Content&DocumentMgmt
3.5%
Billing&ServiceMgmt
1.0%
BusinessIntelligence
1.3%
Asset&FacilitiesMgmt
1.3%
Retail
0.3%
CRM&Marketing
2.6%
Engineering,PLM&CAD/CAM
3.2%
Accounting&Finance
1.0%
Utilities
1.3%
DevelopmentTools&ApplicationTesting
3.2%
DataMgmt&Integration
1.6%
EDA
1.6%
EDI/Middleware
0.6%
RealEstate
1.3%
ERP
1.0%
PublicSector
1.6%
Gaming
0.6%
Messaging,Conferencing&
Communications
2.3%
OtherVerticals
6.1%
Oil&Gas
2.3%
VerticalDeals
Manufacturing
0.3%
Legal
0.3%
Hospitality
0.3%
Mobile
22.5%
Healthcare
9.0%
FinancialServices
8.4%
Education
3.9%
Automotive
0.3%
Multimedia,Graphics&DigitalMedia
4.5%
WebAnalytics
0.6%
Security
2.9%
Networking&NetworkPerformanceMgmt
2.6%
Talent&WorkforceMgmt
2.3%
SupplyChain&Logistics
2.3%
SOFTWARE AS A SERVICE (SAAS) M&A DEAL

VOLUME AND VALUATIONS
The number of SaaS M&A transactions continues
to soar. In 2Q12, 59 SaaS companies were
acquired, a 31% increase from 45 transactions in
2Q11. SaaS targets accounted for 14.0% of all
software industry acquisitions in 2Q12, compared
to only 7.8% of all software M&A deals just two
years ago (Figure 37).
SaaSas%ofSoftware
18%
68
#ofSaaSM&ADeals
70
59
60
45
39
40
30
30
20
20
10
0
16%
65
13
10
39
26
48
14%
12%
10%
8%
6%
4%
2%
3.9x
SaaSM&ADealsasa%ofTotal
SoftwareM&ADeals
80
50
SaaS exit valuations are also ramping, and have

begun to approach pre-Recession highs. The
median EV/Revenue exit multiple for SaaS
providers in the second quarter was 4.0x, up 2.6%
QoQ, and 14.3% YoY (Figure 38). 2Q12s
median exit valuation is more than double the
median 1.7x TTM EV/Revenue exit multiple of onpremise software companies in 2Q12.
Figure 38: Median SaaS M&A Valuation
Multiple as a Multiple of TTM Revenue
Figure 37: SaaS M&A Deals as % of Total

Software M&A Deals
SaaSM&ADeals
Storage&SystemsMgmt
2.3%
3.7x
3.7x
3Q11
4Q11
4.0x
3.5x
2Q11
1Q12
2Q12
0%
Figure 39: SaaS M&A by Product Category
VerticalDeals
Utilities
2%
Billing&ServiceMgmt
2%
CRM&Marketing
25%
Retail
2%
RealEstate
7%
OtherVerticals
5%
Manufacturing
2%
DevelopmentTools&
ApplicationTesting
2%
Legal
2%
Insurance
2%
Hospitality
3%
Facilities&AssetMgmt
2%
Healthcare
2%
FinancialServices
2%
Education
3%
Automotive
2%
BusinessIntelligence
3%
Messaging,
Conferencing&
Communications
12%
WebAnalytics
3%
Storage,DataMgmt&
Integration
Talent&Workforce
2%
SupplyChain&Logistics
Mgmt
3%
14%
SAPs acquisition of Ariba wasnt the only

blockbuster SaaS deal in the second quarter.
Microsoft acquired Yammer ($1 billion EV), often
referred to as the Facebook of the workplace.
Yammers social elements, which can
demonstrably enhance workplace productivity,
were deemed by Microsoft to be a vital extension
for its tired, but industry leading Office Suite. The
$1 billion price tag follows shortly after the target
raised venture capital at a significantly lower premoney valuation, reminiscent of the now maligned
Facebook/Instagram deal.
Another notable second quarter SaaS deal was
Intuits acquisition of Demandforce ($423.5
million, estimated 11.3x TTM revenue), a provider
of SaaS applications that automate digital
marketing and communications. Demandforces
horizontal customer base of SMB businesses and
complementary products provide Intuit with
significant cross sell opportunities and a direct
path to higher revenue per customer.
There were a number of other notable SaaS deals
in the quarter (for a full list of SaaS acquisitions,
see Appendix G). Clearly, the industrys largest
on-premise software companies now view SaaS
as a viable deployment model and strategic
imperative. Second quarter SaaS company
acquirers included: Oracle, Salesforce.com, EMC,
Autodesk, Experian, VMWare and LivePerson.
The broad based appeal of SaaS is evidenced by

the fact that 2Q12s transactions included SaaS
targets in ten different product categories and
twelve vertical markets.
The CRM & Marketing product category
accounted for a whopping 25% of all SaaS M&A
transactions in 2Q12. We believe this signals the
last flurry of consolidation in this product category,
with larger vendors bulking up in response to
increased market adoption of SaaS deployed
CRM apps among enterprises and SMBs (Figure
39). Notable Q2 transactions in this category
include: Salesforce.coms acquisitions of
Thinkfuse and ChoicePass; Oracles acquisitions
of Collective Intellect and Vitrue; Experians
acquisition of Conversen; LivePersons acquisition
of Amadesa; and as noted above, Intuits
acquisition of Demandware.
The Talent & Workforce Management product
category of our SaaS Index accounted for
approximately 14% of the Q2 SaaS M&A tally.
Talent/Workforce Management was one of the
earliest SaaS deployed application suites to gain
a significant foothold among enterprises, and they
continue to appeal to larger on-premise software
providers that are under pressure to add SaaS to
their product mix.
Collectively, vertical solution providers (pure-play

SaaS and hybrid) accounted for 35% of all SaaS
M&A transactions. SaaS sellers targeting real
estate accounted for 7% of all SaaS deals. The
remaining deals were spread nearly evenly across
the eleven other vertical product categories.
INTERNET M&A DEAL VOLUME AND VALUATIONS

Internet M&A activity in the second quarter was
robust, finishing the quarter with 273 transactions,
up 37% YoY (Figure 40). The second quarters
273 Internet transactions was 65% of the final
tally for traditional on-premise software M&A, up
markedly from 3Q10 when Internet M&A was only
30% of the on-premise software deal total.
Figure 40: Internet M&A Volume
273
220
216
203
199
2Q11
3Q11
4Q11
1Q12
2Q12
The most active Internet M&A category in 2Q12

was Ad Tech & Lead Gen, which accounted for 70
transactions in Q2 (Figure 41). A good number of
the sellers in this category were daily deal sites
that hoped to emulate Groupon and Living Social,
but were unsuccessful due to their inability to
scale quickly and massively, making them ripe for
consolidation. Other Ad Tech & Lead Gen deals
in Q2 included a new breed of online marketing
companies leveraging social media and easy to
use software to help local businesses, a highly
sought after target market in the Internet space.
Historically, Groupon has been highly acquisitive

in this category, but not so in the second quarter.
However, a broad array of buyers in an array of
industries took up the slack, including: Deluxe
Corporations acquisition of OrangeSoda ($27.7
million EV); Twitters acquisition of RestEngine;
Facebooks acquisition of Tagtile; IHS acquisition
of GlobalSpec ($135 million EV); and Cox Target
Medias acquisition of Savings.com ($100 million
EV).
Content & Media was also among the most active
Internet categories from an M&A perspective, with
62 transactions in the second quarter. By far the
most notable 2Q12 transaction in this product
category was Facebooks acquisition of
Instagram. Hammered out over a weekend
session between the CEOs of both companies,
the $1 billion price tag caused many to scratch
their heads since Instagram had zero revenue
and no discernible business model. While it
certainly made strategic sense to marry the
leading mobile image sharing application with the
worlds largest social network, it seems highly
doubtful the deal will ever yield sufficient return to
justify the price tag.
Social Media M&A volume was relatively low in
Q2 compared to prior quarters, somewhat
surprising given the high market valuations and
visibility of public Social Media players. Still, there
were some noteworthy acquisitions in the second
quarter, including Twitters purchase of
Hotspots.io; LinkedIns acquisition of SlideShare
($72 million EV); Salesforce.coms acquisition of
BuddyMedia ($745 million EV); and Facebooks
purchase of Face.com ($60 million EV).
The TTM Internet M&A median exit multiple was
2.1x in 2Q12 (Figure 42). However, that median
Figure 42: Median Internet M&A Valuations
as Multiple of Revenue
2.6x
Figure 41: Internet M&A Volume by Product

Category
Category
Ad-Tech & Lead Gen
Commerce
Content & Media
Gaming
Infrastructure
Social Tech
Total
Q2 2011 Q3 2011 Q4 2011 1Q 2012 2Q 2012

42
67
60
65
70
56
36
38
36
57
36
45
48
51
62
15
6
14
13
25
25
27
27
31
30
25
35
16
24
29
199
216
203
220
273
2.8x
2.0x
2Q11
3Q11
4Q11
2.1x
2.1x
1Q12
2Q12
is derived by aggregating median multiples over

the prior twelve months, and doesnt reflect the
recent surge in Internet M&A volume and exit
values.
The median exit multiple for the second quarter,
only, was 2.5x, markedly higher than the trailing
twelve months figure. Given an expanded and
dynamic group of public Internet companies that
are trading at lofty valuations, a vibrant and
growing addressable market, and rapidly evolving
Internet deployed technologies, we expect
Internet valuations will continue to grow robustly
for the remainder of 2012.
APPENDIX A: 2Q12 PUBLIC SOFTWARE MARKET VALUATIONS AND STATISTICS BY PRODUCT CATEGORY
EV/Revenue
2Q11
3Q11
4Q11
1Q12
2Q12
2Q11
3Q11
4Q11
1Q12
2.8x
1.3x
1.3x
1.3x
1.3x
EV/Revenue
2.8x
2.3x
2.6x
2.8x
2Q12
2.7x
EV/EBITDA
7.4x
5.2x
5.6x
6.6x
6.9x
EV/EBITDA
10.1x
8.9x
9.2x
9.8x
9.8x
EV/Earnings
12.4x
9.3x
12.0x
11.8x
11.1x
EV/Earnings
24.6x
18.8x
19.6x
25.0x
18.1x
Gross Profit Margin
52.0%
51.8%
52.9%
53.5%
54.1%
Gross Profit Margin
69.7%
69.0%
67.0%
66.0%
64.4%
EBITDA Margin
25.5%
21.9%
23.3%
21.8%
18.5%
EBITDA Margin
27.0%
27.5%
26.6%
25.4%
25.6%
Net Income Margin
16.0%
18.2%
17.1%
15.5%
12.9%
Net Income Margin
12.1%
13.4%
11.0%
12.2%
13.2%
TTM Revenue Growth (YoY)
9.3%
10.7%
34.1%
19.1%
22.3%
6.6%
7.2%
7.9%
5.7%
7.1%
TTM EBITDA Growth (YoY)
9.4%
13.8%
5.6%
0.8%
0.3%
4.8%
9.6%
10.1%
10.3%
9.5%
TTM Earnings Growth (YoY)
-7.4%
-15.1%
-34.0%
-10.1%
-5.2%
-15.0%
-14.3%
-9.7%
-5.8%
-6.9%
2.6
3.1
4.3
2.3
2.4
1.4
1.3
1.4
1.3
1.4
Cash as Percent of Market Cap
20.8%
32.1%
34.1%
22.8%
20.9%
11.9%
12.1%
14.7%
11.4%
13.0%
Enterprise Value Growth (YoY)
19.2%
8.4%
-3.0%
-10.3%
-22.4%
32.5%
9.3%
3.5%
8.4%
4.1%
2Q12
Current Ratio
Current Ratio
2Q11
3Q11
4Q11
1Q12
2Q12
2Q11
3Q11
4Q11
1Q12
EV/Revenue
3.2x
2.8x
2.4x
2.3x
2.5x
EV/Revenue
1.0x
1.4x
1.2x
1.2x
0.9x
EV/EBITDA
43.1x
39.6x
36.5x
39.3x
38.1x
EV/EBITDA
10.9x
9.1x
7.8x
7.1x
7.6x
EV/Earnings
27.8x
142.0x
56.9x
66.4x
66.0x
EV/Earnings
19.8x
20.2x
15.1x
12.3x
10.5x
Gross Profit Margin
79.3%
79.2%
78.7%
78.9%
78.5%
Gross Profit Margin
55.5%
57.7%
58.9%
56.9%
57.4%
EBITDA Margin
10.0%
7.3%
8.0%
8.9%
8.7%
EBITDA Margin
10.4%
12.1%
12.8%
11.6%
9.2%
Net Income Margin
5.7%
3.6%
5.2%
4.9%
4.0%
Net Income Margin
4.9%
6.0%
5.5%
5.5%
6.0%
18.2%
21.6%
25.2%
23.7%
19.0%
-0.4%
2.6%
4.8%
6.9%
14.1%
Gaming
-8.9%
-6.8%
-4.9%
4.6%
6.0%
82.8%
29.3%
44.5%
41.4%
7.3%
76.4%
-6.2%
-14.3%
2.9%
-29.0%
-162.0%
-74.0%
-23.2%
-44.1%
-32.4%
Current Ratio
2.1
1.9
1.8
1.8
1.9
2.4
2.7
2.3
2.3
2.6
14.0%
15.5%
15.9%
15.3%
14.8%
20.8%
24.5%
22.8%
22.9%
35.7%
32.1%
53.5%
14.9%
16.2%
-5.8%
34.2%
39.4%
30.6%
15.0%
-16.7%
Healthcare
2Q12
Current Ratio
2Q11
3Q11
4Q11
1Q12
2Q12
2Q11
3Q11
4Q11
1Q12
EV/Revenue
2.6x
1.8x
1.9x
2.3x
1.9x
EV/Revenue
3.9x
3.5x
3.1x
3.6x
3.3x
EV/EBITDA
10.5x
8.0x
9.0x
10.1x
9.1x
EV/EBITDA
19.6x
19.0x
15.5x
18.4x
15.3x
EV/Earnings
19.0x
14.0x
14.9x
18.7x
18.3x
EV/Earnings
38.7x
37.5x
31.1x
30.3x
38.1x
Gross Profit Margin
76.4%
77.2%
77.2%
76.4%
76.6%
Gross Profit Margin
65.3%
65.7%
66.0%
65.9%
65.2%
EBITDA Margin
21.3%
22.0%
22.4%
22.2%
22.1%
EBITDA Margin
18.9%
21.8%
21.5%
22.1%
22.3%
Net Income Margin
12.0%
12.6%
12.8%
12.9%
12.8%
Net Income Margin
2.2%
4.2%
3.9%
3.8%
3.4%
23.2%
15.0%
11.0%
7.7%
6.4%
16.3%
17.6%
16.6%
18.7%
22.6%
20.0%
21.8%
10.8%
2.4%
2.9%
6.3%
23.3%
40.1%
45.3%
45.7%
-33.8%
-26.5%
-17.3%
-12.3%
-11.9%
-19.9%
-31.0%
-72.1%
-62.0%
-31.6%
Current Ratio
2.3
2.4
2.0
2.2
2.0
2.0
1.9
1.9
1.9
2.2
15.6%
19.5%
19.9%
21.8%
20.6%
10.4%
8.8%
9.2%
7.6%
13.0%
34.7%
15.0%
-10.0%
-17.1%
-16.6%
42.2%
56.2%
21.1%
11.6%
-8.8%
Engineering & PLM
Current Ratio
2Q11
3Q11
4Q11
1Q12
2Q12
2Q11
3Q11
4Q11
1Q12
2Q12
EV/Revenue
2.4x
1.9x
2.0x
2.6x
2.3x
EV/Revenue
2.6x
2.6x
2.5x
3.1x
2.9x
EV/EBITDA
17.4x
12.8x
13.5x
14.3x
11.5x
EV/EBITDA
8.8x
8.5x
9.0x
8.2x
7.7x
EV/Earnings
28.4x
20.8x
24.6x
25.1x
24.3x
EV/Earnings
14.6x
14.4x
15.0x
13.3x
12.9x
Gross Profit Margin
83.4%
83.1%
83.0%
83.0%
83.6%
Gross Profit Margin
70.2%
70.2%
70.9%
71.5%
71.5%
EBITDA Margin
15.1%
15.8%
16.2%
18.5%
19.9%
EBITDA Margin
35.2%
35.7%
37.1%
37.4%
36.9%
Net Income Margin
11.4%
11.9%
7.7%
8.3%
10.4%
Net Income Margin
14.9%
14.7%
19.4%
24.2%
23.9%
12.9%
14.2%
15.5%
13.5%
13.5%
15.2%
11.9%
8.5%
7.7%
5.3%
13.0%
25.9%
38.4%
37.5%
43.1%
21.8%
21.3%
10.8%
6.1%
6.6%
-64.4%
-22.3%
-54.6%
-35.8%
-18.3%
-11.9%
-20.7%
-19.0%
-12.3%
-11.9%
Current Ratio
2.1
1.7
1.7
1.3
1.4
1.8
1.5
1.3
18.4%
19.3%
19.4%
20.5%
18.3%
14.6%
13.3%
15.4%
15.5%
18.6%
40.8%
18.6%
3.5%
3.0%
11.5%
24.1%
15.0%
-1.4%
6.0%
-2.1%
2Q11
3Q11
4Q11
1Q12
2Q12
2Q11
3Q11
4Q11
1Q12
2Q12
3.2x
2.8x
2.8x
3.0x
2.4x
EV/Revenue
3.3x
2.1x
2.5x
3.3x
2.6x
23.4x
17.2x
13.5x
22.6x
15.0x

EV/Revenue
2.1
1.8
IT Conglomerates
Current Ratio
EV/EBITDA
11.1x
9.1x
9.6x
10.2x
8.3x
EV/EBITDA
EV/Earnings
20.8x
14.9x
17.9x
16.7x
13.1x
EV/Earnings
31.9x
21.7x
22.2x
16.0x
19.9x
Gross Profit Margin
70.2%
70.2%
70.9%
71.5%
71.5%
Gross Profit Margin
66.7%
66.8%
65.8%
64.2%
63.5%
EBITDA Margin
30.0%
30.0%
29.5%
29.3%
29.0%
10.9%
EBITDA Margin
10.5%
11.3%
7.0%
7.5%
Net Income Margin
14.1%
14.4%
14.2%
16.3%
18.4%
Net Income Margin
0.4%
1.6%
2.1%
1.6%
1.3%
13.7%
17.9%
16.3%
12.4%
10.1%
20.2%
17.6%
12.7%
10.6%
12.3%
22.0%
36.2%
36.0%
33.5%
10.4%
12.8%
19.5%
6.5%
-14.9%
3.1%
-16.6%
-24.4%
-28.2%
-29.6%
-39.8%
-38.2%
-13.5%
-31.3%
-9.8%
-16.8%
1.3
1.4
1.8
1.5
1.2
3.3
3.5
3.5
3.6
3.6
14.6%
19.5%
18.7%
17.6%
22.2%
14.3%
14.2%
19.9%
19.8%
19.5%
37.0%
18.6%
0.6%
6.0%
-2.1%
10.9%
15.5%
-2.2%
-26.7%
-35.7%
Current Ratio
Current Ratio
APPENDIX A: 2Q12 PUBLIC SOFTWARE MARKET VALUATIONS AND STATISTICS BY PRODUCT CATEGORY
2Q11
3Q11
4Q11
1Q12
2Q12
2Q11
3Q11
4Q11
1Q12
EV/Revenue
4.3x
3.0x
2.9x
3.4x
2.9x
EV/Revenue
4.7x
3.8x
3.9x
3.8x
3.7x
EV/EBITDA
24.8x
16.9x
19.7x
20.0x
19.1x
EV/EBITDA
15.4x
13.3x
12.7x
11.6x
11.6x
Networking & Network Perf Mgmt
Vertical - Finance
2Q12
EV/Earnings
37.5x
27.8x
30.8x
35.4x
22.8x
EV/Earnings
46.7x
33.9x
33.5x
28.4x
25.9x
Gross Profit Margin
68.9%
69.1%
69.0%
69.4%
70.0%
Gross Profit Margin
69.8%
69.8%
69.6%
68.8%
68.5%
EBITDA Margin
16.4%
17.9%
18.5%
17.8%
17.5%
EBITDA Margin
36.7%
36.6%
36.8%
36.6%
36.9%
Net Income Margin
8.8%
12.8%
11.6%
12.8%
12.7%
Net Income Margin
13.8%
13.9%
13.9%
14.6%
15.7%
23.6%
21.5%
29.0%
25.6%
22.9%
18.1%
15.6%
15.0%
15.1%
13.1%
48.1%
60.5%
46.4%
35.5%
29.7%
20.8%
23.6%
13.8%
13.9%
15.9%
-55.6%
-60.0%
-46.5%
-29.6%
-24.6%
-15.9%
-11.6%
-19.9%
-16.2%
-14.7%
Current Ratio
2.8
3.1
3.0
3.0
2.7
1.2
1.2
1.2
1.1
1.3
12.4%
18.5%
17.6%
11.7%
16.8%
5.5%
6.3%
6.6%
10.8%
10.7%
91.2%
20.1%
-15.8%
-12.3%
-16.6%
24.4%
11.2%
-7.2%
-3.8%
-0.2%
2Q11
3Q11
4Q11
1Q12
2Q12
2Q12
Security
Current Ratio
2Q11
3Q11
4Q11
1Q12
EV/Revenue
3.8x
3.7x
5.1x
4.8x
5.6x
EV/Revenue
3.4x
2.6x
2.6x
2.8x
2.6x
EV/EBITDA
16.5x
15.8x
25.2x
15.5x
13.6x
Vertical - Other
EV/EBITDA
15.3x
13.0x
16.0x
16.7x
15.6x
EV/Earnings
23.9x
20.3x
19.6x
18.0x
13.6x
EV/Earnings
24.3x
26.1x
27.3x
30.3x
39.5x
Gross Profit Margin
79.2%
78.9%
79.1%
79.3%
79.0%
Gross Profit Margin
57.5%
57.5%
57.1%
56.9%
56.6%
EBITDA Margin
20.6%
21.4%
21.0%
22.2%
21.4%
15.7%
EBITDA Margin
17.0%
16.6%
16.5%
16.6%
Net Income Margin
14.5%
9.8%
10.2%
11.6%
13.8%
Net Income Margin
10.4%
10.5%
10.1%
8.7%
7.1%
23.5%
19.1%
16.8%
26.3%
19.4%
10.4%
15.4%
21.6%
20.7%
26.5%
9.2%
4.6%
9.3%
13.2%
15.7%
13.6%
31.9%
29.3%
28.6%
15.5%
-0.4%
1.2%
-16.8%
-15.3%
-11.2%
-13.0%
-24.2%
-38.5%
-4.7%
13.9%
1.1
1.2
1.2
2.0
2.0
1.3
1.3
1.2
1.7
1.6
14.9%
18.6%
15.9%
13.2%
12.1%
15.0%
12.3%
14.6%
7.3%
12.5%
46.3%
43.3%
11.9%
25.0%
-2.0%
53.5%
39.3%
45.3%
37.1%
8.0%
Current Ratio
2Q11
3Q11
4Q11
1Q12
2Q12
EV/Revenue
2.6x
2.1x
2.2x
2.5x
2.4x
EV/EBITDA
12.7x
9.8x
9.8x
10.3x
9.4x
EV/Earnings
24.5x
18.8x
18.1x
19.9x
17.7x
Gross Profit Margin
75.1%
75.3%
75.4%
74.6%
74.8%
EBITDA Margin
22.0%
22.3%
22.1%
22.7%
22.6%
Net Income Margin
12.2%
11.8%
12.0%
12.2%
12.5%
15.7%
15.7%
8.5%
9.4%
7.7%
16.0%
19.0%
9.8%
14.2%
10.6%
-19.9%
-26.2%
-20.9%
-20.7%
-13.8%
Current Ratio
2.0
1.9
2.0
2.0
2.3
15.5%
19.5%
18.7%
21.8%
21.9%
46.5%
18.9%
0.0%
0.3%
-7.5%
2Q12
2Q11
3Q11
4Q11
1Q12
EV/Revenue
2.2x
1.9x
2.2x
2.3x
2.1x
EV/EBITDA
12.0x
11.2x
11.9x
12.9x
11.3x
EV/Earnings
20.8x
19.1x
18.5x
20.5x
21.1x
Gross Profit Margin
57.7%
57.4%
58.4%
59.1%
59.5%
EBITDA Margin
14.8%
15.8%
17.6%
18.6%
19.6%
Net Income Margin
9.1%
9.9%
11.0%
10.6%
10.9%
13.6%
18.5%
20.2%
14.4%
17.3%
23.9%
27.7%
34.3%
53.6%
36.9%
-12.8%
-19.7%
-30.0%
-28.8%
-25.1%
Current Ratio
2.2
2.3
2.4
2.6
2.6
16.9%
19.5%
18.3%
15.4%
18.5%
20.4%
20.2%
23.4%
31.0%
34.7%
2Q12
Systems Management
2Q11
3Q11
4Q11
1Q12
EV/Revenue
5.6x
3.9x
3.9x
4.2x
4.3x
EV/EBITDA
17.0x
13.6x
15.1x
16.8x
16.3x
EV/Earnings
28.5x
20.8x
25.3x
30.9x
30.4x
Gross Profit Margin
85.2%
85.1%
85.2%
85.5%
85.7%
EBITDA Margin
28.3%
28.9%
29.3%
30.0%
28.5%
Net Income Margin
17.1%
17.7%
17.4%
17.8%
16.8%
14.6%
13.5%
14.0%
14.2%
13.4%
14.7%
16.6%
16.7%
17.9%
16.8%
-20.3%
-19.5%
-20.5%
-11.5%
-10.3%
Current Ratio
Current Ratio
1.7
1.7
1.5
1.5
1.5
13.6%
16.5%
18.5%
15.6%
14.5%
46.6%
13.2%
-6.2%
2.9%
3.6%
APPENDIX B: 2Q12 PUBLIC SAAS MARKET VALUATIONS AND STATISTICS BY PRODUCT CATEGORY
2Q11
3Q11
4Q11
1Q12
EV/Revenue
CRM & Marketing
6.1x
4.8x
3.6x
5.3x
2Q12
4.6x
EV/EBITDA
47.1x
27.8x
25.9x
29.7x
30.1x
EV/Earnings
216.7x
80.9x
68.3x
57.7x
60.6x
Gross Profit Margin
71.9%
72.0%
72.3%
73.2%
73.8%
EBITDA Margin
7.2%
6.9%
6.7%
7.5%
7.6%
Net Income Margin
1.8%
1.8%
1.7%
2.7%
2.1%
29.6%
28.2%
25.2%
29.9%
21.4%
11.8%
16.5%
3.6%
14.9%
27.6%
-15.2%
-27.2%
16.5%
20.7%
31.5%
Current Ratio
2.0
2.4
2.4
2.4
3.3
11.7%
14.9%
21.4%
13.3%
12.8%
75.3%
56.2%
-6.6%
-2.9%
-5.8%
2Q12
2Q11
3Q11
4Q11
1Q12
EV/Revenue
ERP & Supply Chain
6.9x
6.0x
5.7x
5.3x
6.0x
EV/EBITDA
37.6x
47.2x
65.3x
68.7x
68.5x
EV/Earnings
62.9x
88.6x
96.6x
57.5x
65.2x
Gross Profit Margin
70.8%
71.3%
71.6%
71.8%
71.7%
EBITDA Margin
8.0%
7.4%
6.9%
7.1%
7.6%
Net Income Margin
2.9%
1.2%
3.7%
1.7%
1.7%
28.1%
19.1%
21.8%
24.3%
27.9%
-13.4%
-18.6%
-18.5%
-7.1%
-5.7%
15.5%
88.0%
-44.6%
-35.1%
-41.8%
Current Ratio
1.4
1.6
1.6
1.6
1.6
11.1%
11.7%
10.0%
8.2%
7.6%
148.6%
76.7%
74.5%
42.6%
35.8%
2Q12
2Q11
3Q11
4Q11
1Q12
EV/Revenue
Vertically Focused
5.6x
5.4x
5.2x
5.7x
4.5x
EV/EBITDA
30.3x
27.8x
27.3x
33.4x
29.9x
EV/Earnings
52.5x
97.6x
88.8x
17.5x
79.6x
Gross Profit Margin
59.8%
60.2%
60.5%
60.6%
60.5%
EBITDA Margin
14.0%
16.1%
16.7%
15.2%
15.3%
Net Income Margin
2.9%
3.8%
4.4%
12.2%
10.4%
29.3%
28.9%
34.2%
34.5%
34.4%
19.8%
38.2%
35.9%
23.5%
30.8%
-47.8%
-37.4%
-25.3%
-57.6%
-49.8%
Current Ratio
2.1
2.1
1.6
1.8
2.8
6.3%
5.0%
4.9%
4.7%
4.8%
56.6%
45.0%
25.5%
23.8%
13.9%
2Q12
2Q11
3Q11
4Q11
1Q12
EV/Revenue
Workforce Management
4.5x
3.6x
4.3x
4.7x
4.8x
EV/EBITDA
63.3x
44.1x
49.4x
47.2x
50.6x
EV/Earnings
607.5x
336.2x
432.1x
412.1x
399.7x
Gross Profit Margin
60.2%
59.6%
59.0%
58.6%
58.1%
EBITDA Margin
1.2%
1.9%
1.1%
0.7%
-0.9%
Net Income Margin
-8.2%
-8.9%
-11.0%
-10.9%
-13.1%
26.6%
32.3%
35.7%
31.1%
29.2%
5.8%
30.6%
25.3%
6.3%
-2.4%
-13.1%
15.1%
20.7%
-45.6%
-50.2%
Current Ratio
1.2
1.9
1.6
1.5
1.3
10.8%
16.0%
14.9%
10.2%
9.3%
162.1%
83.7%
44.7%
33.7%
12.3%
2Q12
2Q11
3Q11
4Q11
1Q12
EV/Revenue
Other SaaS
5.9x
2.4x
2.0x
7.3x
5.2x
EV/EBITDA
46.1x
15.7x
21.6x
24.5x
19.8x
EV/Earnings
124.9x
49.0x
43.8x
34.1x
26.1x
Gross Profit Margin
71.7%
71.8%
71.5%
71.6%
72.2%
EBITDA Margin
17.0%
14.8%
13.0%
12.6%
14.5%
Net Income Margin
3.0%
4.0%
2.6%
3.0%
4.4%
30.9%
30.6%
24.7%
21.0%
27.1%
24.8%
51.3%
3.4%
16.1%
14.2%
-74.0%
-79.4%
12.8%
11.4%
65.5%
Current Ratio
1.9
2.0
2.1
2.1
2.5
11.8%
18.3%
22.5%
14.9%
12.9%
67.0%
30.0%
-29.1%
-27.3%
20.4%
APPENDIX C: 2Q12 PUBLIC INTERNET MARKET VALUATIONS AND STATISTICS BY PRODUCT CATEGORY
2Q11
3Q11
4Q11
1Q12
2Q11
3Q11
4Q11
1Q12
EV/Revenue
Ad Tech & Lead Generation
3.3x
2.6x
2.6x
3.0x
2Q12
2.3x
EV/Revenue
4.9x
4.4x
3.0x
2.6x
2.4x
EV/EBITDA
10.9x
11.1x
12.0x
14.1x
11.4x
EV/EBITDA
21.4x
16.0x
16.8x
17.0x
15.2x
EV/Earnings
17.4x
15.8x
16.8x
28.3x
28.8x
Services
2Q12
EV/Earnings
38.9x
66.0x
20.6x
38.1x
34.1x
Gross Profit Margin
68.4%
67.3%
66.7%
67.7%
67.6%
Gross Profit Margin
68.7%
69.4%
70.8%
71.7%
71.8%
EBITDA Margin
21.7%
20.9%
17.8%
13.9%
14.0%
11.9%
EBITDA Margin
8.7%
9.5%
7.8%
13.3%
Net Income Margin
6.8%
6.8%
6.3%
4.4%
3.6%
Net Income Margin
-3.9%
-2.7%
3.0%
3.0%
4.7%
24.3%
25.1%
29.8%
34.4%
37.5%
24.6%
31.8%
29.7%
52.5%
57.8%
16.1%
31.5%
24.3%
26.3%
36.9%
14.8%
6.2%
17.0%
30.0%
44.5%
-21.3%
-8.5%
-10.5%
-22.9%
-13.9%
-24.4%
-16.4%
-41.4%
-38.0%
-89.8%
3.2
3.1
3.0
2.9
2.8
2.2
1.8
2.0
2.2
1.7
11.7%
12.9%
14.3%
18.2%
20.3%
7.5%
9.8%
12.0%
11.5%
10.3%
47.6%
35.4%
-0.1%
-12.8%
-21.5%
14.9%
-5.8%
-35.5%
-37.4%
-43.7%
Commerce
2Q12
Current Ratio
Current Ratio
2Q11
3Q11
4Q11
1Q12
EV/Revenue
1.9x
1.4x
1.1x
0.9x
0.7x
EV/Revenue
EV/EBITDA
19.4x
13.8x
12.9x
16.7x
18.8x
Social
2Q11
3Q11
4Q11
1Q12
2Q12
22.7x
18.9x
12.4x
13.7x
13.0x
EV/EBITDA
137.6x
107.2x
41.5x
33.7x
32.8x
EV/Earnings
51.2x
33.3x
27.5x
15.4x
14.7x
EV/Earnings
254.5x
269.8x
361.0x
232.0x
156.5x
Gross Profit Margin
40.7%
39.3%
37.5%
36.9%
37.0%
Gross Profit Margin
75.2%
76.8%
75.2%
EBITDA Margin
8.0%
9.7%
9.3%
8.6%
8.3%
EBITDA Margin
13.4%
13.6%
13.4%
12.2%
12.9%
Net Income Margin
3.4%
2.6%
2.3%
3.8%
3.1%
Net Income Margin
-11.2%
-13.3%
-11.9%
2.3%
2.4%
9.2%
9.3%
13.2%
14.3%
17.5%
87.9%
89.7%
102.8%
74.5%
64.2%
76.1%
75.7%
1.4%
5.9%
8.4%
2.0%
6.5%
45.0%
84.8%
0.0%
-22.5%
-33.8%
4.5%
28.6%
24.6%
21.1%
43.3%
-29.7%
-8.1%
29.2%
13.4%
7.1%
2.3
2.3
2.2
1.8
1.8
3.7
3.1
2.7
2.7
3.0
12.7%
20.0%
15.6%
12.7%
13.5%
5.0%
15.4%
19.7%
13.8%
10.1%
39.5%
24.4%
-14.6%
-28.3%
-25.8%
n/a
n/a
n/a
0.9%
-5.6%
2Q12
Current Ratio
Content & Media
Current Ratio
2Q11
3Q11
4Q11
1Q12
2Q12
2Q11
3Q11
4Q11
1Q12
EV/Revenue
3.4x
2.7x
2.2x
2.0x
1.7x
EV/Revenue
7.3x
5.0x
5.5x
4.7x
3.1x
EV/EBITDA
18.1x
10.9x
10.7x
10.6x
10.1x
EV/EBITDA
32.5x
23.4x
14.1x
15.1x
15.4x
Travel
EV/Earnings
32.8x
16.6x
17.0x
17.5x
20.8x
EV/Earnings
41.9x
34.5x
23.2x
25.8x
27.8x
Gross Profit Margin
50.2%
51.3%
51.7%
52.0%
51.9%
Gross Profit Margin
80.0%
78.8%
78.7%
79.9%
79.9%
EBITDA Margin
11.3%
12.8%
12.6%
13.4%
13.3%
EBITDA Margin
22.1%
21.9%
22.2%
22.1%
21.7%
Net Income Margin
-2.4%
4.1%
2.5%
0.6%
1.4%
Net Income Margin
12.0%
8.4%
8.9%
8.2%
12.9%
26.7%
12.4%
12.6%
25.6%
25.8%
18.9%
28.2%
25.7%
28.7%
31.5%
12.2%
24.7%
17.2%
14.5%
-6.9%
19.3%
24.0%
19.8%
17.1%
16.5%
-68.9%
-13.0%
-27.5%
10.0%
32.4%
-10.8%
-4.4%
-16.3%
-16.7%
-22.7%
Current Ratio
2.3
2.6
2.6
2.6
2.1
1.6
1.9
1.9
2.0
2.1
21.6%
22.1%
27.3%
20.9%
18.3%
8.5%
10.4%
9.8%
12.2%
13.2%
16.5%
-7.9%
-44.3%
-24.0%
-37.4%
14.6%
6.2%
-20.6%
-25.6%
-35.4%
2Q11
3Q11
4Q11
1Q12
2Q12
EV/Revenue
Gaming
4.4x
4.5x
3.1x
3.2x
3.1x
EV/EBITDA
9.7x
7.9x
6.0x
4.2x
4.0x
EV/Earnings
11.6x
10.4x
8.4x
8.8x
7.3x
Gross Profit Margin
75.9%
75.8%
75.8%
74.6%
71.1%
EBITDA Margin
42.5%
45.9%
45.3%
44.2%
45.5%
Net Income Margin
37.1%
36.8%
33.6%
34.4%
32.3%
24.3%
29.7%
34.2%
35.7%
33.5%
16.1%
24.8%
27.0%
23.9%
28.7%
-20.8%
-22.0%
-15.1%
-14.5%
-9.3%
4.1
3.2
2.7
2.7
2.2
25.0%
18.9%
30.0%
29.5%
28.5%
41.6%
28.8%
-26.2%
-5.9%
-8.2%
2Q12
Current Ratio
2Q11
3Q11
4Q11
1Q12
EV/Revenue
Infrastructure
3.0x
2.6x
1.7x
2.0x
1.8x
EV/EBITDA
19.4x
16.8x
12.6x
14.3x
16.2x
EV/Earnings
33.6x
28.0x
22.7x
29.6x
24.0x
Gross Profit Margin
65.7%
63.0%
65.8%
66.7%
66.6%
EBITDA Margin
12.0%
12.0%
11.8%
11.2%
10.9%
Net Income Margin
4.5%
4.5%
3.5%
3.0%
4.6%
15.9%
19.3%
24.6%
24.4%
18.1%
25.1%
18.9%
18.7%
23.8%
21.8%
-20.4%
-17.9%
-22.4%
-6.0%
1.9%
3.1
2.8
2.8
2.6
2.9
14.7%
21.7%
19.5%
22.6%
24.2%
55.5%
31.1%
-14.5%
-24.8%
-31.9%
Current Ratio
Current Ratio
APPENDIX D: 2Q12 MERGERS AND ACQUISITIONS, SELECT PUBLIC SELLER VALUATIONS

Buyer
Seller
Purchase Price Enterprise Value EV/Rev EV/EBITDA
TTM Rev
Grow th
SAP (DB:SAP)
Ariba Inc. (NasdaqGS:ARBA)
$4,607,750,000
$4,411,350,000
8.8x
108.0x
27.3%
Dell Inc. (NasdaqGS:DELL)
Quest Softw are Inc. (NasdaqGS:QSFT)
$2,507,250,000
$2,244,050,000
2.6x
14.0x
12.4%
DTS Inc. (NasdaqGS:DTSI)
SRS Labs, Inc. (NasdaqGM:SRSL)
$148,100,000
$113,240,000
3.4x
50.7x
8.5%
Lagardere Active SAS
LeGuide.com S.A. (ENXTPA:ALGUI)
$80,170,000
$91,960,000
2.6x
7.4x
13.0%
CreaFund CVBA; Uniholding SA
Transics International NV (ENXTBR:TRAN)
$64,310,000
$79,780,000
1.3x
7.7x
19.9%
R.R. Donnelley & Sons (NasdaqGS:RRD)
EDGAR Online Inc. (NasdaqCM:EDGR)
$74,670,000
$71,200,000
2.3x
49.3%
Prow ebClub
Prow ebCE (ENXTPA:ALPRW)
$34,250,000
$44,480,000
0.8x
14.9x
20.3%
APPENDIX E: 2Q12 MERGERS AND ACQUISITIONS, MOST ACTIVE BUYERS

Purchase
Price (m m )
Enterprise
Value (m m )
TTM Rev
(m m )
actsmartw are GmbH
Knuckle Face, Inc.
DollarApp
Symbiot, Inc.
Bytemobile, Inc.
Podio ApS
Buyer
Seller
Bitzio, Inc. (OTCBB:BTZO)

Chaotic Moon, L.P.
Citrix Systems, Inc. (NasdaqGS:CTXS)
EV/Rev
The Citrix XenClient Enterprise Group
Cologix, Inc.
Carrier Connex Inc.
The Minnesota Gatew ay
Constellation Softw are Inc. (TSX:CSU)
Smyth Systems Inc.
Cognera Corp.
Lender Processing Services, Inc., Certain Assets
Aptitude Solutions, Inc. and True Automation, Inc.
New Century Softw are Inc.
Clerity Solutions, Inc.
MAKE Technologies Inc.

Ebix Inc. (NasdaqGS:EBIX)
EMC Corporation (NYSE:EMC)
Expedite 5, Inc. (AIM:ZATT)
Facebook, Inc. (NasdaqGS:FB)
IHS Inc. (NYSE:IHS)

IBM (NYSE:IBM)
Intuit Inc. (NasdaqGS:INTU)
$5.1
$5.1
$40.0
Syncplicity, Inc.
Watch4Net Solutions Inc.
Hattrick Holdings Limited
$29.5
$29.5
Sneaky Games, Inc.
$6.1
$5.9
Face.com
$60.0
$60.0
Oracle Corporation (NasdaqGS:ORCL)

Possible Worldw ide Inc.
$1,000.0
$1,000.0
Karma Science, Inc.
Tagtile
Meebo, Inc.
Quickoffice, Inc.
DITTO.ME, INC.
Pospitality LLC
GlobalSpec, Inc.
$135.0
$135.0
Xedar Corporation (OTCPK:XDRC)
$28.0
$28.0
TeaLeaf Technology, Inc.
Varicent Softw are Inc.
Vivisimo, Inc.
AisleBuyer LLC
Managed Planet Softw are, Inc.
$423.5
$423.5
$37.0
11.3x
$82.0
$82.0
Amadesa, Inc.
Look IO Inc
Collective Intellect, Inc.
Vitrue, Inc.
Carnation Internet Tancsad Zrt
Grape LLC
Wavelink Corporation
LivePerson Inc. (NasdaqGM:LPSN)
2.6x
$40.0
Demandforce, Inc.*
LANDesk Softw are, Inc.
$880.0
Fintechnix Pty Limited
Instagram, Inc.
Groupon, Inc. (NasdaqGS:GRPN)
$2,244.1
PlanetSoft, Inc.
Glancee, Inc.
Google Inc. (NasdaqGS:GOOG)
$2,507.3
*Revevenue Estimate
APPENDIX E: 2Q12 MERGERS AND ACQUISITIONS, MOST ACTIVE BUYERS (CONT)

Purchase
Price (m m )
Enterprise
Value (m m )
TTM Rev
(m m )
EV/Rev
$1.0
$1.0
Tw o Way Limited (ASX:TTV)
Frame
Seamless Receipts, Inc.
Buyer
Seller
Priority One Netw ork Group Ltd.
Opus Media Plc
Sailthru, Inc.
salesforce.com, inc (NYSE:CRM)
SAP AG (DB:SAP)
Descartes Systems (TSX:DSG)
Thomson Reuters(TSX:TRI)
Trimble Navigation (NasdaqGS:TRMB)

Tw itter, Inc.
u-blox Holding AG (SWX:UBXN)
ValueFirst Messaging Pvt. Ltd.
Buddy Media, Inc.
$745.0
$745.0
ChoicePass Inc.
Stypi
Thinkfuse
8.8x
$4,607.8
$4,411.4
$502.0
Syclo LLC
Infodis B.V.
$3.3
$3.3
Integrated Export Systems, Ltd.
$34.2
$34.2
Apsmart Limited
Fast Facts Computer Systems Ltd.
Zaw ya Limited
GEOTrac Systems Inc.
SketchUp
Hotspots.io
RestEngine
4m Wireless Ltd.
$9.0
$9.0
Cognovo Limited
$16.5
$16.5
Gingersoft Media Pvt. Ltd.

Way2Online Interactive India Pvt. Ltd.
VMw are, Inc. (NYSE:VMW)
YTL Pow er Investments Limited

Zhejiang Daily Media (SHSE:600633)
Zynga, Inc. (NasdaqGS:ZNGA)
$35.7
Cetas Softw are, Inc.
DynamicOps, Inc.
Wanova, Inc.
WMS Industries Inc. (NYSE:WMS)
$35.7
$100.0
$100.0
Genesis Communications Inc.
Jadestone Group AB
FrogAsia Sdn Bhd
FrogTrade Ltd
$11.8
$20.6
Hangzhou Bianfeng Netw ork Tech. Co.
$498.1
$498.1
$63.0
7.9x
Shanghai Haofang Online Info. Tech. Co.
$55.8
$55.8
Wild Needle, Inc.
Zynga Eugene
*Revenue Estimate
APPENDIX F: 2Q12 MERGERS AND ACQUISITIONS, SELECT INDUSTRY MEGA-DEALS

Buyer
Seller
Purchase Price Enterprise Value EV/Rev EV/EBITDA
TTM Rev
Grow th
SAP (DB:SAP)
$4,607,750,000
$4,411,350,000
8.8x
108.0x
27.3%
$2,507,250,000
$2,244,050,000
2.6x
14.0x
12.4%
Microsoft Corporation (NasdaqGS:MSFT) Yammer, Inc.*
$1,200,000,000
$1,200,000,000
40.0x
Facebook, Inc. (NasdaqGS:FB)
Instagram, Inc.
$1,000,000,000
$1,000,000,000
Apax Partners Worldw ide LLP; JMI Equity Paradigm B.V.
$1,000,000,000
$1,000,000,000
$745,000,000
$745,000,000
salesforce.com, inc (NYSE:CRM)
Buddy Media, Inc.
*Revenue Estimate
APPENDIX G: 2Q12 MERGERS AND ACQUISITIONS, SELECT SOFTWARE-AS-A-SERVICE SELLERS

Date
Buyer
06/27/2012 Rafter, Inc.

06/27/2012 Trader Media Group Limited
06/26/2012 Accufund, Inc.
06/26/2012 Spectrum Equity Investors
06/25/2012 salesforce.com, inc (NYSE:CRM)
06/15/2012 Forum Trading Solutions Ltd
06/15/2012 Microsoft Corporation (NasdaqGS:MSFT)
06/14/2012 Syncapse Corp.
06/14/2012 Vista Equity Partners
06/13/2012 The Descartes Systems Group Inc (TSX:DSG)
06/13/2012 New market International, Inc.
06/13/2012 Infor Global Solutions, Inc.
06/12/2012 Revionics, Inc.
06/08/2012 Autodesk, Inc. (NasdaqGS:ADSK)
06/06/2012 Francisco Partners Management LLC
06/05/2012 Oracle Corporation (NasdaqGS:ORCL)
06/05/2012 ON24, Inc.
06/01/2012 WineDirect, Inc.
05/31/2012 Sales Engine International LLC
05/30/2012 Econocom Telecom Services SAS
05/24/2012 Quindell Portfolio Plc (AIM:QPP)
05/23/2012 Oracle Corporation (NasdaqGS:ORCL)
05/23/2012 Barclaycard
05/22/2012 SAP America, Inc.
05/21/2012 Experian plc (LSE:EXPN)
05/21/2012 EMC Corporation (NYSE:EMC)
05/16/2012 LivePerson Inc. (NasdaqGM:LPSN)
05/15/2012 Quandrant4 Systems Corp. (OTCPK:QFOR)
05/14/2012 Logic Solutions, Inc.
05/14/2012 Documotive Limited
05/11/2012 Gatew ay EDI, Inc.
05/11/2012 Heritage Acquisitions Limited
05/10/2012 Xceligent, Inc.
05/09/2012 TriNet Group, Inc.
05/08/2012 Fair Isaac Corp. (NYSE:FICO)
05/08/2012 EPiServer AB
05/07/2012 Synchronoss Technologies, Inc. (NasdaqGS:SNCR)
05/02/2012 Aprimo, Incorporated
05/02/2012 Zillow , Inc. (NasdaqGS:Z)
05/01/2012 C3, LLC
05/01/2012 Peoplefluent, Inc.
04/30/2012 Reputation Rhino LLC
04/30/2012 Arts et Biens
04/27/2012 Intuit Inc. (NasdaqGS:INTU)
04/24/2012 VMw are, Inc. (NYSE:VMW)
*Revenue Estimate
Seller
HubEdu, Inc.
DELTAPOINT ASSOCIATES LIMITED
AccuFund CRM
Active Internet Technologies, LLC
Thinkfuse
ChoicePass Inc.
PLUS Trading Solutions Ltd.
Yammer, Inc.*
Clickable, Inc.
Bullhorn, Inc.
Integrated Export Systems, Ltd.
MeetingMatrix International, Inc.
Easy (Ez) Revenue Management
Retail Optimization, Inc.
Vela Systems, Inc.
Plex Systems, Inc.
Collective Intellect, Inc.
Imaste-ips S.L.
Vin65 Corp.
Manticore Technology, Inc.
Tactem SAS
Quindell Enterprise Technology
Vitrue, Inc.
Analog Analytics Inc.
Conversen, Inc.
Syncplicity, Inc.
Amadesa, Inc.
empow HR, Inc.
Quantum Compliance, Inc
Fusion Information Systems Ltd
National Healthcare Exchange
Agentplus Pty Ltd.
ePropertyData.com LLC
App7, Inc.
Entiera, Inc.
200OK AB
SpeechCycle, Inc.
eCircle AG
RentJuice Corporation
Efficiency 2.0, LLC
Stypi
Socialtext, Inc.
ReputationManagements.com
Prenax Global AB
Demandforce, Inc.*
Cetas Softw are, Inc.
Enterprise
Value
$55,000,000
$440,000
$1,200,000,000
$34,200,000
$1,240,000
$9,890,000
$4,411,350,000
$8,210,000
$38,000,000
$37,420,000
$423,500,000
-
TTM
Revenue
EV/Rev
40.0x
$1,240,000
1.0x
$4,700,000
2.1x
$501,900,000 8.8x
$365,000
102.4x
$38,000,000 11.3x
-
APPENDIX G: 2Q12 MERGERS AND ACQUISITIONS, SELECT SOFTWARE-AS-A-SERVICE SELLERS (CONT)

Date
Buyer
04/23/2012 KANA Softw are, Inc.

04/23/2012 Mangrove Employer Services, Inc.
04/18/2012 Marketo, Inc.
04/17/2012 ADERANT Holdings, Inc.
04/13/2012 International Business Machines Corporation (NYSE:IBM)
04/11/2012 Boathouse Capital; Renovus Capital Partners
04/11/2012 Atos S.A. (ENXTPA:ATO)
04/11/2012 Citrix Systems, Inc. (NasdaqGS:CTXS)
04/09/2012 Underw riters Laboratories Inc.
04/05/2012 QL2 Softw are, LLC
04/05/2012 Harris Computer Systems, Inc.
04/04/2012 Allen Systems Group, Inc.
* Revenue Estimate
Seller
Enterprise
Value
TTM
Revenue
EV/Rev
Trinicom
CanopyHR Solutions, LLC
Crow d Factory, Inc.
Omega Legal Systems, Inc.
Varicent Softw are Inc.
Atomic Learning, Inc.
blueKiw i Softw are SA
Podio ApS
UL EduNeering, Inc.
RivalWatch, Inc.
Cognera Corp.
Net Transmit & Receive, S.L.
$26,220,000
-
$6,500,000
-
4.0x
-
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Q2 2012 Software Industry Financial Report Contents

Software Equity Group, L.L.C.

Software Equity Group, L.L.C.

Investment Banking / Mergers & Acquisitions

Figure 1: U.S. Gross Domestic Product and Unemployment Rate

U.S. ECONOMY: SOFTWARE INDUSTRY

2| 2Q12 SOFTWARE INDUSTRY FINANCIAL REPORT

Software Equity Group, L.L.C.

Investment Banking / Mergers & Acquisitions

When increasing its IT forecast, Gartner pointed

1Q12, reaching $8.4 billion, a 15% year-over-year

Figure 2: Domestic IT Spending

PUBLIC SOFTWARE/SAAS/INTERNET COMPANY

Following strong growth and solid returns in the

INTERNET RETAIL SPENDING AND ADVERTISING

3| 2Q12 SOFTWARE INDUSTRY FINANCIAL REPORT

Among SEGs three tracking indices, the market

Software Equity Group, L.L.C.

Investment Banking / Mergers & Acquisitions

SEG Internet Index

PUBLIC SOFTWARE COMPANY FINANCIAL

Healthcare providers were also well represented

Investment Banking / Mergers & Acquisitions

PUBLIC SOFTWARE COMPANY MARKET

Figure 7: SEG Software Median EV/Revenue

At the close of 2Q12, the median EV/Revenue

Figure 5: SEG Software Index TTM Revenue

Among our top ten most profitable software

Figure 6: SEG Software Historical Median

Many of the most profitable on-premise software

Public software companies proved especially

Public software companies continued to increase

Over this same time period, the number of public

Software Equity Group, L.L.C.

5| 2Q12 SOFTWARE INDUSTRY FINANCIAL REPORT

Software Equity Group, L.L.C.

Investment Banking / Mergers & Acquisitions

The second quarters market downturn had an

In the second quarter, median TTM revenue grew

Size (i.e., annual revenue) wasnt the only

PUBLIC SOFTWARE COMPANY FINANCIAL

6| 2Q12 SOFTWARE INDUSTRY FINANCIAL REPORT

Healthcare providers (22.6%) continue to benefit

Software Equity Group, L.L.C.

Investment Banking / Mergers & Acquisitions

Figure 10: SEG Software Index Median Metrics by Product Category

Billing & Service Management

Engineering & PLM

Enterprise Resource Planning

Financial & Accounting

Networking & Network Performance Management

Storage, Data Management & Integration

Supply Chain Management & Logistics

The Mobile solutions product category had the

PUBLIC SOFTWARE COMPANY MARKET

7| 2Q12 SOFTWARE INDUSTRY FINANCIAL REPORT

EV/Revenue multiples ranging from 5.0x to 7.3x

Software Equity Group, L.L.C.

Investment Banking / Mergers & Acquisitions

Figure 11: SEG Software Median EV/Revenue vs.

Engineering & PLM