IT Barometer

1
Valuing Your Company An MA Perspective
Prepared For December 13, 1999
Financial Management Series
2
Agenda

• IT MA Market Perspective
• Valuation Overview
• Case Study Consumer Web Services

3
IT MA Market Perspective
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Broadviews Target Market Includes Information
Technology, Media And Communications
Media Information Services
Hardware Products
TelecomServices
Supporting Products Services
Software Products Services

• Carrier Equipment
• Components
• Consumer Electronics
• Computer Systems
• Enterprise Communications
• Military/Aerospace Electronics
• Application-Specific Systems
• Peripherals Subsystems
• Manufacturing Test Equipment
• Multi-Hardware

• Print Media
• Digital Media/Web
• Marketing Services
• Broadcasting
• Production Services
• Multiple Media Content

• CATV Access
• Enhanced Services Resellers
• Network Backbone
• Satellite Access
• Wireless Access
• Wireline Access
• Multi-Telecom

• Distribution
• Integration, Leasing, Maintenance Other
• Manufacturing Repair Services
• Supplies
• Multi-Support Services

• Enterprise Applications
• Professional Services
• Systems Management
• Application Development Tools
• Personal-Productivity Applications
• Multi-Software

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For The First Half Of 1999, Global MA Activity
Saw Strong Growth, Nearly Doubling In Value
544.8B
Transaction Value
Europe North America
283.3B
Number of Transactions
2900
2467
1095
867
1805
1600
1998
1999
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Valuation Overview
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Valuation Methodologies Vary Greatly By Market
Segment
Conservative
Aggressive
Forward Multiples P/Users, P/Page Views, Relative
Contribution
Mature Businesses
Growth Businesses
DCF
P/E
P/R
Print Media
Professional Services
Enterprise Software
Enterprise Communications HW
Consumer Web Media
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Valuations And Valuation Multiples Also Vary
Dramatically By Segment
Mainframe Systems Software
Consumer Web Services
Performance Characteristics
Valuation Measures
Performance Characteristics
Valuation Measures
Revenue 34.7 EBITDA 14.2 Forecast Revenue 10 Gr
owth
Revenue 3.4 EBITDA (LOSS) Forecast Revenue 246 G
rowth
Valuation 65.0 TMC/R 1.9 P/EBITDA 4.6 P/E 8.0
Valuation 215.0 TMC/R 63.2 P/EBITDA NMF P/E NMF
Note Financial figures in millions
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How Does Broadview Generally Value A Company?
Market Specific
Transaction Specific

• Public Market Comparables
• TMC/Revenue
• P/E
• TMC/Monthly Unique Users
• Transaction Comparables
• P/R
• P/E
• Discounted Cash Flow Analysis
• Public vs. Private
• Private Company Discounts

• EPS Accretion/Dilution
• Purchase Model
• Pooling Model
• Relative Contribution Analysis

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Successful Negotiations Can Result In A Broad
Range Of Outcomes
Acceptable Deal
Valuation Structure Liquidity
Buyers Maximum Terms
Financial Terms
Private Sellers Minimum Terms
Culture Strategic Direction Product Support
Non-Financial Terms
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Many Factors Can Impact A Buyers View Of
Valuation

• Market Size, Growth and Attractiveness
• Company Growth, Profitability and Relative
  Position
• (e.g., 1 position)

Performance

• Quality and Commitment of Management
• Consistency of Performance
• Financial and Legal Record Keeping

Perception of Risk
Transaction Specific

• Transaction Structure (Purchase vs. Pooling)
• Strength of Buyers Currency

• Make vs. Buy and Time to Market Issues
• Real or Perceived Competition
• (Negotiating Leverage of Seller)

Alternatives
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Other Issues To Be Considered By A Seller

• Currency Risk
• Liquidity
• Cultural/Organizational Fit
• Control/Autonomy
• Market Timing

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Case StudyConsumer Web Services
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Market Indicators Point To Phenomenal Growth In
Web Services
AOL, Yahoo and Amazon Stock Performance (EMC over
time)3
U.S. IPO Activity
240,000
120
1
133
200,000
90
160,000
60
120,000
80,000
19
30
11
6
1
40,000
0
1995
1996
1997
1998
1999
0
1995
1996
1997
1998
1999
VC Funding
MA Activity
2
811
9,000.0
800
8,000.0
700
7,000.0
600
6,000.0
500
5,000.0
4,000.0
400
3,000.0
300
2,000.0
157
200
1,000.0
63
100
29
6
0.0
0
1995
1996
1997
1998
1999
1995
1996
1997
1998
1999
1. Annualized IPOs and Filings. Priced IPO up to
11/28/99 89. 2. Annualized based on
11/28/99. 3. 11/28/99 Aggregate EMC of the three
(YHOO IPO Completed 4/12/96 AMZN IPO Completed
5/16/97).
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In Contrast To Traditional Markets, The Web
Services MA Market Appears To Be Chaotic
Historically Hot Categories
Virtual Communities
Search and Directory
Banners/ Advertising
eTailers

• Selling of Concepts not Businesses
• Importance of First Mover Advantage
• Impulse Buys - Deals done in Internet Time
• Viral Growth and Brand (vs Distribution)
• Unique Usage (vs Technology)
• Supply vs Demand Valuations
• No Profit, No Revenue, No Model, Big Markets
• IPO Gold Rush
• Enormous Prospect Universe

Web Financial Services
International
Web Auction
Communications/ Scheduling
Netcasting
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Valuation Benchmarks - A Mix Of Metrics
TMC2/Revenue1
Median, Upper and Lower Quartile Multiples
TTM
CY 1999
CY 2000
30
60
60
Content Commerce
39.31
20
40
40
16.20
30.26
10
20
20
12.23
7.55
3.95
0
0
0
TMC2/Gross Profit
TMC2/Monthly Unique User3
1388.67
160
600
120
450
362.80
71.64
235.63
80
300
35.48
40
150
0
0
1. Forward estimates from selected analyst
reports. 2. TMC based on share prices as of
11/18/99. 3. Source MediaMetrix, May 1999.
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Broadview Information
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Broadview Fact Sheet
Business Focus Advising companies on mergers and
acquisitions, restructurings and private
financings private equity investor in the US and
throughout Europe Industry Focus IT,
Communications and Media Office Locations
Boston, Silicon Valley, New York, London,
Tokyo Employees Over 260 Professionals
Approximately 130 Managing Directors
22 Ownership Private Partnership Number and
Value of Transactions 91 8.7 billion Average
Deal Size 95.59 million Number of Public
Company Transactions 55 Number of Fairness
Opinions 27 Client Focus Buyside Advisory 38
Sellside Advisory 62
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Representative Broadview Transactions
August 1999