UBS Pitchbook example for M&A purposes (educational for IB)

UBS Pitchbook example for M&A purposes (educational)

1. UBS Technology M&A
March 2005
Discussion of Current Industry Trends
STRICTLY CONFIDENTIAL

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Table of Contents
SECTION 1 M&A Market Conditions 2
SECTION 2 M&A Drivers and Considerations 8
SECTION 3 UBS Overview 14

3. SECTION 1
M&A Market Conditions

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M&A Volume in the US
Large, strategic combinations are back—Proctor & Gamble / Gillette, JPMorgan / BankOne, Cingular / AT&T Wireless, Sprint /
Nextel, Oracle / PeopleSoft, Symantec / Veritas, Johnson & Johnson / Guidant and Wachovia / SunTrust
Significant financial sponsor activity in the middle market
–Taking advantage of depressed market conditions and attractive debt markets
Current rebound in activity across all industries is reflective of a return to a healthier market
608
433
529
1,045
1,411
1,219
1,328
530
407
296
154
116110
97
0
250
500
750
1,000
1,250
1,500
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
(
$

in

b
illio
n
)
Volume up 41% in 2004
vs. 2003
Source: Securities Data Corporation

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Technology M&A Activity
Technology M&A Volume Has Increased Steadily Since 2002 Lows
58 58
98
157
65
46 47
65
26
60
148
233
36
19 17
25
24
$85
$143
$485
$124
$64
15
22
65
95
$65
$311
$103
0
50
100
150
200
250
300
350
400
450
500
1997 1998 1999 2000 2001 2002 2003 2004
D
e
a
l
V
a
lu
e

(
U
S
$

B
illio
n
s
)
0
500
1,000
1,500
2,000
2,500
3,000
N
o
.

o
f

D
e
a
ls
> $10bn
$1bn - $10bn
< $1bn
No. of Deals
1997 1998 1999 2000 2001 2002 2003 2004
No. of Deals 1,133 1,409 1,862 2,648 1,705 1,318 1,329 1,508
Source: Securities Data Corporation
Note: Oracle/PeopleSoft included as 2004 transaction, original hostile offer was first launched in Q3 2003

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M&A Deal Activity is Intensifying
Market recovery in 2003 and stability in 2004 have increased corporate confidence and created
an environment conducive to M&A transactions
Technology companies are exiting defensive, "survive the downturn" mentality and reviewing strategic options
–Recalibrating under invested businesses
–Capturing upside as economic conditions continue to improve
Technology M&A deal volume increased 60% in 2004
–M&A pipeline is expected to be strong for 2005
281
325
352
371 370
394
345
399
100
200
300
400
500
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2003 2004
102.6
$64.2
$64.9
40
60
80
100
120
2002 2003 2004
(1% )
60%
Number of Announced Transactions
1
Technology M&A Deal Volume (US$ Billions)
1
179 additional transactions were announced in 2004 compared with
2003
Volume of discussions has intensified drastically
Source: Security Data Corporation
Note:
1 Oracle/PeopleSoft included as 2004 transaction, original hostile offer was first launched in Q2 2003

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Current Trends in Technology M&A
TREND OVERVIEW RECENT TRANSACTIONS
Resurgence in
Deal Activity


A recovery in technology stock prices and increased corporate confidence have driven
M&A activity
– Companies have restructured their businesses and increased earnings
– Companies are eager to make acquisitions to capture upside as market conditions improve

2004 marked the return of the Technology M&A “mega-deals”
– Deals over $1 billion represented 36% of deal value in 2004, versus 27% in 2003
– Return of landscape shaping deals such as Symantec/Veritas, ARM/Artisan and the
completion of Oracle/PeopleSoft

IBM / Ascential ($1,100mm)

Symantec / Veritas ($13,521mm)

Lenovo Group / IBM PC Business
($1,300mm)

CA / Netegrity ($451mm)

Juniper / Netscreen ($3,816mm)

Oracle / Peoplesoft ($10,300mm)

ARM / Artisan ($933mm)






Sector
Consolidation


Sector consolidation continues to drive M&A
– As companies refocus on growth, they are seeking opportunities to expand product
offerings, acquire new technology and achieve critical mass
– Regulatory environments created product opportunities for acquirors and at the same time
forced smaller listed firms to re-assess the pros and cons of operating on a standalone basis

3Com / TippingPoint ($408mm)

Credence / NPTest ($663mm)

Serena / Merant ($380mm)

Cisco / NetSolve ($137mm)


Mm)



Stock
Consideration


Stock consideration has become a more favorable M&A currency as technology stock
prices have recovered
– Most technology companies have been trading at or close to their three-year highs

In some recent deals, cash consideration has been linked to stock consideration as acquirors
tap into the equity markets to raise funds for acquisitions
– Improvements in capital markets have allowed companies to raise cash at a low cost through
convertibles or straight equity

Symantec / Veritas ($13,521mm)

Safenet / Rainbow ($463mm)

Credence / NPTest ($663mm)
– Issued convertible

Serena / Merant ($380mm)
– Issued convertible






Private Equity
Activity


Private equity players continue to show interest in acquiring technology companies
– Some technology stocks have enjoyed only limited participation in the market recovery
– Low interest rates have enabled private equity players to borrow at low costs to fund
acquisitions
– The downturn has created companies with lower cost structures and higher profitability
– The recent market recovery has provided private equity players with better exit opportunities

Carlyle / Insight ($2,100mm)

Golden Gate Capital / Blue Martini
($54mm)

Veritas Capital / DynCorp from
CSC ($850mm)

Bain Capital, Silver Lake Partners,
Warbug Pincus / UGS PLM from
EDS ($2,050mm)

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M&A and IPO Activity in the Technology Sector
Number of Announced M&A Transactions and IPO Filings
Source: Securities Data Corporation and UBS Equity Capital Markets Group
Note: Oracle/PeopleSoft included as 2004 M&A transaction, original hostile offer was first launched in Q3 2003
1,133
1,409
1,862
2,648
1,705
1,318
1,508
1,329
124
100
309
235
23
19 21
60
0
500
1,000
1,500
2,000
2,500
3,000
1997 1998 1999 2000 2001 2002 2003 2004
N
o
.

o
f

A
n
n
o
u
n
c
e
d

M
&
A

D
e
a
l
s
0
50
100
150
200
250
300
350
N
o
.

o
f

I
P
O
s

F
i
l
e
d
M&A IPO

9. SECTION 2
M&A Drivers and Considerations

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Principal Drivers of Technology M&A
Achieve
Scale



Critical mass and financial strength

Customer leverage

Increased distribution and sales support

Market position consolidation

Leapfrog competition

Expand
Product
Offering



New market entry — product or geography

Capture new customer bases

Buy vs. make — time to market

Engineering talent and/or management acquisition

Off-income statement R&D

Offer
Complete
Solution



Fill product gaps

Capitalize on installed base

Accelerate time to market

Strengthen channel partnerships

Offer one-stop shop

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M&A Considerations
Business
Rationale



Compelling strategic rationale

Create or consolidate market leadership position

Essential new technologies, markets or products

Financial
Considerations



Transaction multiples compared to public comparables and precedent transactions

Impact on combined company revenue and earnings growth trajectories

Effect on margins

Revenue and cost synergies

EPS accretion / dilution

Market
Reaction



Market perception of target company / merger partner

Consistent, simple to understand story

Financial parameter clarity

Price paid / consideration mix

Execution
Risk



Time to closure

Anti-trust / regulatory

Tight contract terms

Integration strategy

A number of factors to consider in pursuing any M&A transaction

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Process Considerations
Public Offering Versus Sale
Initial Public Offering Sale of Business
PROS:
Primary shareholders retain voting control and existing
management continues to execute the strategic vision of
the business
Proceeds from an IPO can be used to increase scale
through acquisitions or fuel organic growth
Shareholders can participate in potential upside should
the business continue to execute and market conditions
remain favorable
CONS
The organization must take on the costs associated with
public filing and compliance requirements while
managing greater scrutiny by investors
An IPO lock-up prevents current shareholders from
achieving immediate liquidity
There is a high degree of uncertainty in future capital
market conditions
There is the potential for a downside in valuation should
the business lose traction
PROS:
Reduces or eliminates execution risks of the current
business plan as well as future capital market
uncertainties
M&A valuation includes control premium
Can offer a more immediate path to liquidity for current
shareholders
Avoids the costs associated with being a public company
Partnering increases opportunity to cross-sell and up-sell
through larger distribution platform and gain rapid
critical mass to better compete
CONS:
Primary shareholders relinquish voting control and new
management executes the strategic vision of the
company
Cash transactions eliminate the upside participation in
the pro forma company
Integration and execution risk of combined business

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30%
36%
39%
40%
52%
61%
0% 10% 20% 30% 40% 50% 60% 70%
ERP
Business Intelligence
Record Management
Process Control
Storage
Security
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
2003 2004 2005 2006 2007
(
$

m
illio
n
s
)
Advisory Services IT Spending
Sarbanes-Oxley 404 Compliance
Benefits Costs
Intended to restore investor confidence in U.S. public
markets
Drives greater consistency and transparency in reported
filings
Increased executive accountability over financial
reporting
Increased spending at the CFO and CTO level to meet
compliance criteria
Increased cost of being public, especially small cap
companies
Entails significant allocation of resources
Not meeting SOX deadline requirements or announcing
inadequacies in significant controls can have negative
effect on stock price
–UTStarcom
–Chordiant Software
–Interpublic Group
Advisory Services Vs. IT Spending Mix for SOX
Compliance
Anticipated Technology Spending to Support SOX
Compliance
Source: Forrester Research survey of 454 technology decision-makers Source: Gartner 2004 estimates

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Typical Timing of an M&A Transaction
Illustrative Timeline of a Sell-Side Controlled Auction Engagement
Negotiation
s and
Closing
Negotiate and sign definitive agreement
Closing
Due
Diligence
and
Preparation
Marketing
Preparation of management
presentation
Initiate contact with buyers
Activity
Due diligence meetings
Information Memorandum
Finalize buyer list
Deliver Information Memorandum
Finalize management presentation and data room
Buyer due diligence
Receipt and review of final proposals
Organizational meetings
Action
Weeks
1 2 3 4 5 6 7 8 9 1011121314151617

15. SECTION 3
UBS Overview

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UBS—A Leading Global Financial Services Firm

“Wall Street
Powerhouse”
FORBES 2004
  The UBS Way
BLOOMBERG 2004
  World’s Best
Investment Bank
EUROMONEY 2004
World’s Best Bank
EUROMONEY 2003
  Best Investment Bank
THE ECONOMIST 2003
World’s Best
Investment Bank
INVESTMENT DEALERS’
DIGEST 2002
“
UBS is a banking giant but, a Wall Street powerhouse? Oh
Yes.
This is a house… that’s grown out of its regional shell to
assume premier proportions in world finance. But it’s the
push into the rarified realm of Investment Banking that
sets UBS apart. ”
“BIG KID ON THE BLOCK”
FORBES
“
UBS has achieved what once seemed impossible for any
European investment bank: it has broken into the front
rank in the US market, source of roughly half the global
investment banking fee pool. In the 12 months ending in
April 2004, it doubled its share in announced US M&A
deals. ”
WORLD’S BEST INVESTMENT BANK
EUROMONEY 2004
Our strength is backed by industry accolades

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UBS—A Leading M&A Advisor with Rapid Improvement in
Market Share
2003–2004
# of Transactions / Market Share
1
2003–2004 Market Share
versus 2000—2002
Notes: Data represents all M&A deals worldwide greater than $100 million in transaction value. Full credit given to acquiror and target advisor(s). Excludes withdrawn deals, equity
carveouts, exchange offers, and open market repurchases
1 Market share based on number of transactions. Market shares do not sum to 100% due to multiple advisors on each transaction (e.g., target advisor and acquiror advisor)
UBS has positioned itself as one of the leading M&A advisors worldwide and has unprecedented
momentum, capturing more market share than any other bank since 2002
6.4%
8.1%
8.5%
8.6%
10.4%
10.8%
12.2%
13.0%
13.8%
14.8%
Lazard
Lehman Bros
Merrill Lynch
Deutsche Bank
CSFB
Morgan Stanley
Citigroup
JP Morgan
Goldman Sachs 459
426
403
377
333
322
265
262
252
197 (38% )
(23% )
(11% )
(5% )
(2% )
(1% )
+3%
+6%
+9%
+23%
CSFB
Merrill Lynch
Morgan Stanley
JP Morgan
Citigroup
Goldman Sachs
Lazard
Deutsche Bank
Lehman Bros

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February 2005
US$415 million
Sale to eBay
February 2005
US$850 million
Sale of Selected DynCorp
Units to Veritas Capital
November 2004
US$137million
Sale to Cisco Systems
July 2004
US$170 million
Sale to FindWhat.com
May 2004
US$663 million
Acquisition of NPTest


May 2004
US$380 million
Sale to Serena Software
March 2004
US$463 million
Sale to SafeNet
January 2004
US$601 million
Sale to Manpower
January 2004
US$467 million
Financial Restructuring
November 2003
US$295 million
Sale to NetScreen
Overview of UBS Technology M&A Group
Strong technology-focused M&A
presence with deep industry knowledge
and company relationships
Experienced in a wide range of advisory
assignments
–Buyer advisory
–Seller advisory
–Cross-border transactions
–Merger of equals
–Shareholder value protection
–Leveraged transactions
Technology M&A Expertise 2004 Technology M&A Transactions Less Than $1 Billion
Source: SDC
Financial Advisor Rank Value ($mm) No. of Deals
Goldman Sachs & Co 1 7,168.2 17
Morgan Stanley 2 6,025.4 22
Credit Suisse First Boston 3 5,187.3 15
UBS 4 4,476.8 11
JP Morgan 5 4,375.4 14
Banc of America Securities LLC 6 2,148.2 5
Citigroup 7 2,114.1 12
Jefferies & Co 8 2,093.0 21
Lehman Brothers 9 1,560.4 9
Rothschild 10 1,492.6 3
Selected Recent Transactions

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Contact Information
UBS Securities LLC
555 California Street
Suite 4650
San Francisco CA 94104
Tel. [phone]
www.ubs.com
UBS Investment Bank is a business group of UBS AG
UBS Securities LLC is a subsidiary of UBS AG
This presentation has been prepared by UBS Securities LLC (“UBS”) for the exclusive use of recipient (together with its subsidiaries and affiliates, the “company”) using information provided by the company and other publicly available information. UBS
has not independently verified the information contained herein, nor does UBS make any representation or warranty, either express or implied, as to the accuracy, completeness or reliability of the information contained in this presentation. Any
estimates or projections as to events that may occur in the future (including projections of revenue, expense, net income and stock performance) are based upon the best judgment of UBS from the information provided by the company and other
publicly available information as of the date of this presentation. There is no guarantee that any of these estimates or projections will be achieved. Actual results will vary from the projections and such variations may be material. Nothing contained
herein is, or shall be relied upon as, a promise or representation as to the past or future. UBS expressly disclaims any and all liability relating or resulting from the use of this presentation.
This presentation has been prepared solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. The company should not construe the contents of this
presentation as legal, tax, accounting or investment advice or a recommendation. The company should consult its own counsel, tax and financial advisors as to legal and related matters concerning any transaction described herein. This presentation
does not purport to be all-inclusive or to contain all of the information which the company may require. No investment, divestment or other financial decisions or actions should be based solely on the information in this presentation.
This presentation has been prepared on a confidential basis solely for the use and benefit of the company; provided that the company and any of its employees, representatives, or other agents may disclose to any and all persons, without limitation of
any kind, the tax treatment and tax structure of the transaction and all materials of any kind (including opinions or other tax analyses) that are provided to the company relating to such tax treatment and tax structure. Distribution of this presentation
to any person other than the company and those persons retained to advise the company is unauthorized. This material must not be copied, reproduced, distributed or passed to others at any time without the prior written consent of UBS.