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Issue 20

Global technology M&A update


AprilJune 2013

Highlights
At $33.4 billion, aggregate value of all disclosed-value deals is essentially flat year-over-year (YOY) and down 8% sequentially (due to one Q113 megadeal). Volume falls to 627 deals, down 14% YOY and 5% sequentially; its the lowest level since 2010, when Q110 and Q210 both posted 628. Private equity (PE) deal value soars 208% YOY to $13.9 billion; PE volume increases for the second consecutive quarter, up 10% YOY and 24% sequentially. Corporate aggregate value falls 32% YOY to $19.5 billion, the lowest level (in other than a seasonally low first quarter) since 2008; corporate volume (570 deals) hits its lowest level since 2009. Cross-border (CB) deal volume and value continue to decline: value falls 63% YOY to $6.4 billion and volume declines 24% YOY to 195 deals.
Total number of all announced deals

Q213

570

57

627

Q113

615

46

661

Q212

676

52

728

Corporate

PE

Total and average deal values for deals with disclosed value $40,000
Total deal value ($m)

$33,374m

$36,437m $1,828

$33,391m

$2,000 $1,500 $1,000

Average deal value ($m)

$30,000 $20,000 $10,000 $0


Corporate PE

Source: EY analysis of The 451 Group Research M&A KnowledgeBase, accessed 3 July 2013. Note: all dollars are US$ unless otherwise indicated.

$300 $265 $202 Q212

$309 $104 Q113

$631 $249 $174 Q213

$500 $0

Average value (corporate and PE)

PE average deal value

Corporate average deal value

A directional view of select Q213 deal-driving trends


$500 Cloud/SaaS

Second-quarter picture unfolds


Deal drivers Cloud/SaaS made its presence felt even more than usual in Q213. It drove deals targeting cloud assets, as well as deals targeting established companies weakened by rapid cloud adoption. Smart mobility and social networking drove big-ticket deals and dozens of smaller ones; big data analytics drove mostly smaller deals. Security-driven deals increased. PE and non-technology companies were major buyers. Distressed and non-core asset sales continued. Deal activity Volume for Q213 was 627 deals, down 14% YOY and 5% sequentially (see Figure 3, page 7). It was the lowest level in three years: both Q110 and Q210 posted 628 deals, just one deal more.* Corporate volume (570 deals) declined for the third consecutive quarter, down 16% YOY and 7% sequentially. PE volume (57 deals) increased for the second consecutive quarter, up 10% YOY and 24% sequentially. After failing to move together only once in the previous five years, the long-term directional correlation weve observed between quarterly deal volume and the NASDAQ Composite Index was absent for the second consecutive quarter in Q213 as some perceive the continuation of quantitative easing (QE) helped to drive stock market increases: the index rose 4%, while M&A volume fell 5%. Deal value

Average deal value ($m)

$400

$300 Security $200 Smart mobility Social networking $0 0 20 40 60 80 100 120 Number of deals noted Big data

$100

Cloud/SaaS and smart mobility drove the most deals in Q213, as they did in the first quarter. Security-driven deals increased from recent quarters, while health care, video and online gaming and payment technologies all declined and fell off the chart. In terms of average value, cloud/SaaS was nearly $400 million per deal, while the rest generally lined up between approximately $100 million to $200 million. Note: average deal value is based on the value of disclosedvalue deals, while number of deals includes both disclosed-value and undisclosed-value deals; bubble size is based on each hot topics share of total value for the quarter. Source: EY analysis of the 451 Group Research M&A KnowledgeBase, accessed 3 July 2013.

Aggregate value of announced deals by deal size, Q213 vs. Q212


Q213 6% 21% 13%
$4,412m 6 deals $33,391m

60%
$19,989m 9 deals

$1,937m $7,053m 86 deals 33 deals

Q212 8%
$2,645m 99 deals

$33,374m

30%
$10,043m 42 deals

18%
$6,099m 8 deals

44%
$14,587m 9 deals

<$100m

$100m$500m

$500m$1b

$1b+

There were the same number of deals at $1 billion or more in Q213 and Q212, but their value increased to 60% of aggregate value this year from 44% last year. Every other deal size decreased in value YOY. They decreased in number too, except for the $1b+ deals. Source: EY analysis of The 451 Group Research M&A KnowledgeBase, accessed 3 July 2013.

Q213 aggregate announced value was $33.4 billion, a virtual tie YOY (+$17 million, or 0.05%) and down 8% sequentially. But the sequential comparison includes the unusual $24.4 billion Dell Inc. megadeal, without which there would have been a substantial sequential increase. Average value per deal increased 18% YOY but declined 19% sequentially (again, due to the Dell deal) to $249 million. Aggregate value of corporate deals fell 32% YOY but increased 80% sequentially, to $19.5 billion in Q213; average value fell 14% YOY and increased 67% sequentially, to $174 million. PE aggregate ($13.9 billion) and average ($631 million) deal values increased YOY by 208% and 110%, respectively (see Figure 3, page 7). But they fell sequentially by 46% and 65%, respectively, due to the Q113 Dell deal. Aside from Q113, Q213 had the highest PE aggregate value and highest percentage of total value in the five years we have collected this data: 42% (compared with 16% in full-year 2012 and 20% in 2011).* Deals getting done Sector volume was down YOY in every sector except computers, peripherals and electronics (CPE), which was up 30% (+10 deals). Sequentially, volume was down everywhere except semiconductors (up 87%, +13 deals) and software/SaaS (up 1%, +4 deals). Average value was mixed: four out of six sectors fell YOY and a different mix of four out of six rose sequentially (see Figure 12, page 22). Cross-border deals

*Though based on two different data sources, we believe these comparisons are useful from a directional perspective. For a full explanation of our methodology, see page 27.

Aggregate cross-border (CB) deal value doubled sequentially to $6.4 billion but that was a 63% YOY drop. Q213 CB value was just 19% of the quarters total disclosed value, compared with 27% in Q113 (excluding the Dell deal) and 41% for full-year 2012. CB deal volume declined 24% YOY and 10% sequentially to 195 deals in Q213 (see Figure 13, page 23).

Global technology M&A update: AprilJune 2013

Given the deal-driving force of the five transformative technology megatrends of mobile-social-cloud, big data analytics and accelerated technology adaptation, it might seem surprising that global technology M&A levels of activity arent higher. But, there are a set of counterbalancing forces holding down the expected levels of activity. These include: chronic macroeconomic and geopolitical uncertainty, unresolved regulatory, fiscal and tax issues and valuation gaps. Collectively, these forces may be causing M&A to reset to lower levels of activity across all industries. That said, I expect the strength of the five megatrends to prevail in technology, resulting in slow, steady M&A growth.
Joe Steger Global Technology Industry Transaction Advisory Services Leader EY

Contents
4 Rising PE, megatrends and their enablers drive Q213 technology M&A 10 Look ahead 12 Top of mind: Technology transformations, headlines drive security consolidation 14 Regional snapshot: Americas 16 Regional snapshot: Asia-Pacific and Japan 18 Regional snapshot: Europe, Middle East and Africa (EMEA) 21 Appendix of additional charts
22 Global technology corporate and PE transactions scorecard by sector 23 Cross-border corporate and PE transactions scorecard by sector 24 Global corporate and PE deals by acquiring country: cross-border and in-border 25 Cross-border deal value flow for technology deals

26 Source notes 27 Methodology

Global technology M&A update: April-June 2013

Rising PE, megatrends and their enablers drive Q213 technology M&A
Our five megatrends EY has identified five long-term megatrends that are generating transformative innovation in technology and leading to technology-enabled innovation in other industries. The five megatrends are smart mobility, cloud computing, social networking, big data analytics and accelerated technology adaptation (technology companies rapidly adapting to the needs of specific industries and other industries rapidly adapting to the evolving possibilities that technology enables). Accelerated technology adaptation challenges whether certain companies are pure technology companies or have entered the industry they are transforming. In addition, all five megatrends are driving increased information security requirements. This report focuses on how these megatrends influenced the microcosm of global technology M&A in Q213, as companies competed for market share and key technologies. PE deal-making growth helped second-quarter global technology M&A values improve considerably over the first quarter, returning to year-ago levels without the benefit of the $24.4 billion Dell Inc. megadeal. Further, big-ticket deals continued to demonstrate the strategic opportunities emerging from innovation involving one or more of the five transformative megatrends weve followed for several years (see sidebar at left). On the flip side: Recent volume declines accelerated Divestitures from corporate restructurings continued Some companies weakened by the disruptive megatrends became deal targets
Megatrends, marketing and security technologies drive big-ticket deals On the positive side, innovation around strategic technologies drove many top 10 deals for the quarter, especially around mobile-social-cloud and big data analytics technologies. Also in Q213, there was the highest-value deal targeting advertising and marketing technology since 2007, and information security returned as a top 10 target for the first time since Q411. These top 10 deal drivers were reflected in dozens of smaller deals. Enabling trends emerge Among the hundreds of small and undisclosed-value deals, we saw a few megatrend-enabler categories emerging. These included: Deals targeting application programming interfaces (APIs), technologies that ease development of applications or integration of data (or both), especially in cloud or mobile environments Several deals involved devops, a contraction of development and operations describing a software development method linked to lean startup methodology that aims to enable greater frequency of new software releases A handful of deals targeted mobile back-end as a service (MBaaS), following MBaaS-related announcements from cloud service providers We explore all three megatrend enablers later in this section, but well have to wait and see how they evolve and if they can be sustained over the long term. Volume falls, remains out of sync with NASDAQ Deal volume declined to 627 deals, down 14% YOY and 5% sequentially from 661 deals in Q113 which was also down YOY, by 12%. The decline is due entirely to a decrease in corporate deal-making, which fell 16% in Q213 (see Figure 3, page 7), its third consecutive quarterly decline. Meanwhile, PE deal volume increased for the second consecutive quarter, by 10% YOY. This also marks the second consecutive quarter in which the long-term correlation weve observed between the NASDAQ and technology M&A deal volume was absent, after diverging only once in the previous five years. The loss of this correlation may be perceived as partially attributable to governmental quantitative easing programs in the US, Europe, Japan and elsewhere, which have buoyed equities markets but not technology companies deal-making confidence. The main concern about declining M&A volume at a time of so much technology innovation is that it suggests that buyers and sellers remain apart on company valuations. In fact, EY believes high valuations (which drive down returns), along with macroeconomic and geopolitical uncertainty, are contributing to falling volume in US deal-making for all industries, leading to a possible fundamental reset of the size of the M&A marketplace.1 Other factors contributing to the volume reset include slow global growth and unresolved regulatory, fiscal and tax issues.

Global technology M&A update: AprilJune 2013

Aggregate value flat, average value up YOY In terms of the values that were disclosed in Q213, aggregate value essentially was flat YOY, rounding to $33.4 billion in both periods. At $249 million, average value increased 18% YOY. But the better news comes when we exclude one transaction the $24.4 billion (still pending shareholder approval) megadeal to take Dell private from Q113 to better reflect that quarters actual M&A landscape. Then the sequential declines in the official charts change to growth of 177% in aggregate value and 142% for average value. Cross-border activity falls faster than in-border The added complexity and risk inherent in CB deals became apparent in the Q213 numbers. CB deal volume declined faster than in-border (IB) deals in the quarter, after falling at the same rate for the

previous three quarters (see Figure 13, page 23). At 195 deals, Q213 CB deal volume was down 24% YOY and 10% sequentially, compared with 14% and 5%, respectively, for all deals. And although CB average value jumped 120% sequentially to $143 million per deal, it did not reverse the 18-month-long trend of its declining average value relative to the all-deal average value. CB average value was higher than all-deals before Q312; since then, it has been lower and the gap has widened each quarter. In Q213, CB average value was 43% lower than all-deal average value. PE skyrocketing Though only half the size of last quarters Dell deal, PE aggregate value of $13.9 billion was higher in Q213 than in any previous quarter (excluding Q113) since we began these reports in 2008. PE average value of $631 million in Q213 was topped only

Figure 1: Global top 10 deals, April-June 2013 (corporate and PE)


Disclosed Announced value ($m)
$6,900 6 May
Multiple of EV/TTM revenue Multiple of EV/TTM EBITDA

Buyer Bain Capital/Golden Gate/GIC/Insight Venture Partners to acquire BMC Software, Inc. Fidelity National Financial, Inc. to acquire Lender Processing Services, Inc. Salesforce.com, Inc. acquired ExactTarget IBM Corporation acquired SoftLayer Technologies, Inc. Tsinghua Holdings Co. Ltd. to acquire Spreadtrum Communications, Inc. Yahoo! Inc. acquired Tumblr Google Inc. acquired Waze Ltd Thomas H. Lee Partners L.P. to acquire CompuCom Systems, Inc. SAP AG acquired hybris AG Vista Equity Partners acquired Websense, Inc.

Status

Deal type

Premium offered 3%

Pending

PE

3.2x

10.0x

$2,900 $2,500 $2,000 $1,389 $1,100 $1,100 $1,100 $1,000 $903

28 May 4 Jun 4 Jun 21 Jun 20 May 11 Jun 8 Apr 5 Jun 20 May

Pending

Corporate

2.0x 7.6x N/A 1.8x N/A N/A 0.5x N/A 2.5x

11.5x N/A N/A N/A N/A N/A N/A N/A 16.3x

21% 58% N/A N/A N/A N/A N/A N/A 70%

Completed* Corporate Completed* Corporate Pending Completed Completed Pending PE Corporate Corporate PE

Completed** Corporate Completed PE

Cloud/SaaS was so pervasive in Q213 that even deals not involving much cloud revenue were somehow ascribed to the cloud. Taking private BMC Software was motivated, in part, to enable BMC to move more aggressively toward cloud applications2 similar to the Dell announcement in Q113.3 Other top 10 deals focused directly on or touching on the cloud were Salesforce.com-ExactTarget, IBM-Softlayer, Google-Waze, Thomas H. Lee-CompuCom, Yahoo-Tumblr and SAP-hybris. Top 10 deals with smart mobility aspects included: Tsinghua-Spreadtrum, Google-Waze, Thomas H. Lee-CompuCom and SAP-hybris. Social network technologies were part of the Google-Waze, Yahoo-Tumblr and Salesforce.com-ExactTarget deals. These companies use social and cloud technologies together to improve the effectiveness of email marketing (ExactTarget), content creation and discovery (Tumblr) and driving through traffic (Waze). Rounding out the top 10 are Vista-Websense (a security software provider) and non-technology company Fidelity National Finances deal for Lender Processing Services, a loan processing technology services provider that was part of Fidelity prior to 2006. PE buyers purchased 49% of the total value of top 10 deals ($20.9 billion). A non-technology buyer (Fidelity) acquired another 14%.
*Completed July 2013; **Completed August 2013. Note: announced deal values are often subject to change at the time of close, due to subsequent revisions to the terms of the deal. Source: EY analysis of The 451 Group Research M&A KnowledgeBase, accessed 3 July 2013.

Global technology M&A update: AprilJune 2013

PE buyers acquired

42%
of Q213 aggregate value.

once in the last five years ($726 million in Q112). PEs strength appears to come from a combination of factors: some technology targets have been weakened by not keeping up with innovation from the five megatrends, enabling activist shareholders to take positions in their stock; favorable credit availability at low interest rates; and the pursuit of value-creation opportunities through operational improvements that corporate buyers may not see or may ignore in favor of deals that focus more on strategic technology opportunities. PE deal-making was most prevalent in the software/SaaS, internet and IT services sectors in Q213. PE volume also increased YOY in those sectors, as well as in the CPE sector (see Figure 12, page 22). PE buyers acquired 42% of Q213 aggregate value, which would have been unprecedented except for the 70% share PE took in Q113 due to the Dell deal. For comparison, PEs share of full-year 2012 aggregate value was only 16%; it was 20% in 2011. In addition, non-technology buyers acquired 12% of Q213 aggregate value. So together, PE and non-technology buyers acquired 54% of the

quarters disclosed value. There was just one Q213 disclosed-value deal in which a technology company purchased a nontechnology unit: Googles purchase for $1 (thats right, one US dollar) of the city of Provo, Utahs fiber-optic network. PE buyers, meanwhile, did 4 of the top 10 deals and a non-technology buyer did a fifth. In fact, the largest deal of Q213 was a cloud-related PE opportunity: the $6.9 billion Bain-led deal to take BMC Software private (see Figure 1, page 5). The software company had just $100 million in cloud revenue for its fiscal year ended March 2013 and like Dell said privatization will allow the company to move more aggressively toward cloud applications and mobile devices.4 Of note, as enterprise technology customers appear more ready to adopt cloud computing than vendors are to offer it, some companies Microsoft Corporation and Cisco Systems, Inc., among them have begun lobbying their reseller partners to move more aggressively to the cloud.5,6

Figure 2: Aggregate cash, short- and long-term investments for the top 25 technology companies, Q211Q213 ($b)
$737b 4% $765b 1% $754b

6% 7% $646b 2% $660b 2% $673b 3% $694b

$609b

0%

$606b

$274 $278 5% $264 2% $268 2% $273 0%

3%

$283

9%

$257

$277

7%

$257

8%

$332

5%

$349

5%

$368

8%

$396

2%

$405

4%

$421

10%

$463

4%

$482

3%

$497

Next 15 Top 10

Q211

Q311

Q411

Q112

Q212

Q312

Q412

Q113

Q213

The top 25 global technology companies* had a rare sequential decline in cash reserves during Q213. Their aggregate stockpile of cash and short- and long-term investments fell 1% sequentially to $754 billion, from $765 billion in Q113. But the Q213 value rose 12% YOY from $673 billion in Q212. The decline came primarily from the next 15 companies, which fell 9% sequentially, while the top 10 rose 3%. Looking deeper, individual companies declines appeared to be related to dividend payments (the second quarter is the traditional dividend payout season in Europe, for example), share buybacks and acquisitions. In fact, one company showed a steep decline from spending on a deal this year compared with the prior-year period, in which it had proceeds from selling a business unit. We still expect long-term growth in this metric.
*Top 25 companies identified are based on average ranking of market value and sales as of 31 December 2012. Note: numbers in above chart differ from past published reports due to changes in the composition of the top 25 companies for 2013 and the date Capital IQ database was accessed for this chart. Source: EY analysis of Capital IQ data, accessed 29 July 2013. 6 Global technology M&A update: AprilJune 2013

In a different kind of PE cloud/SaaS deal, Thomas H. Lee Partners acquired CompuCom for $1.1 billion. CompuCom was a traditional value-added reseller (VAR) that transformed itself into a Cloud Builder (a VAR that helps enterprises get the most out of their cloud services) and was named a cloud computing superstar earlier this year by trade publication CRN.7 Exemplifying a corporate cloud/SaaS deal aimed at strategic growth, IBM spent $2 billion buying SoftLayer Technologies, a cloud infrastructure services provider, in order to accelerate its own cloud-related revenue growth (see Americas snapshot, page 14). Social, marketing technology as a service Three more top 10 deal targets ExactTarget, Tumblr and Waze all deliver their applications and services via the cloud. Salesforce.coms completed $2.5 billion acquisition of email marketing services provider ExactTarget (see Americas snapshot, page 14) is the largest deal for a marketing technology company since 2007, when Google announced its $3.1 billion

acquisition of DoubleClick, Inc.8 Established technology companies including IBM, Oracle Corporation, Salesforce.com and SAP have been acquiring marketing or e-commerce technology companies, often cloud-based and involving social media analytics, customer analytics or both. They appear to be following the money: some research forecasts that chief marketing officers will spend more on technology than chief information officers by 2017.9 In Q213, there were more than four dozen deals targeting advertising and marketing technology; their disclosed value (including the ExactTarget deal) was nearly $4 billion. Tumblr and Waze involve social networking. Waze provides a GPS-based mobile application that taps into a community of users to enhance the accuracy of maps and provide real-time updates about current conditions. The US Federal Trade Commission (FTC) is reviewing the $1.1 billion deal after it closed (in June).10 Yahoos $1.1 billion deal for Tumblr, a blog creation and hosting service, brings it a young audience and the rapt attention of fast-growing communities of

Aggregate value for PE deals soars 208% YOY to

$13.9 billion.

Figure 3: Global technology transactions scorecard, Q213


Deals announced Corporate Number of deals announced Number of deals with disclosed values Total value of deals with disclosed values ($m) Average value of deals with disclosed values ($m) PE Number of deals announced Number of deals with disclosed values Total value of deals with disclosed values ($m) Average value of deals with disclosed values ($m) Corporate and PE Number of deals announced Number of deals with disclosed values Total value of deals with disclosed values ($m) Average value of deals with disclosed values ($m) 728 158 $33,374 $211 627 134 $33,391 $249 5% 14% 8% 19% 14% 15% 0% 18% 52 15 $4,506 $300 57 22 $13,893 $631 24% 57% 46% 65% 10% 47% 208% 110% 676 143 $28,868 $202 570 112 $19,498 $174 7% 8% 80% 67% 16% 22% 32% 14% Q212 Q2 Q3 Q4 Q1 Q2 Q213 Sequential % change YOY % change

Scorecard attributes were precisely mixed in Q213 12 green arrows pointing up and 12 red arrows pointing down. The dual stories of the quarter were the significant increase in PE activity and corporates decline, especially YOY. Not counting Q113 and the Dell megadeal, the $13.9 billion PE quarterly aggregate value seen above is the largest in the five years we have collected this data.* Corporate deal-making activity, however, has rarely been lower than seen above. Corporate quarterly aggregate value has not been below $19.5 billion in other than a first quarter (which typically has the lowest technology M&A activity of the year) in nearly five years, since Q308.* And corporate M&A volume has not dipped lower than 570 deals since Q409.*
*Though based on two different data sources, we believe these comparisons are useful from a directional perspective. For a full explanation of our methodology, see page 27. Source: EY analysis of The 451 Group Research M&A KnowledgeBase, accessed 3 July 2013. Global technology M&A update: AprilJune 2013 7

PE and nontechnology buyers together accounted for

54%
of Q213 aggregate value.

users.11 Yahoo said Tumblr will continue operating independently. Of note, Yahoo was the most acquisitive company in our Q213 M&A data, with eight deals (including Tumblr). One was a free conference call services provider and the other six involved various kinds of mobile apps, including travel comparison, photo editing, locationaware videogames and research surveys. None of them had a disclosed value. E-commerce analytics and smart mobility SAP completed its $1 billion deal for hybris, a business-to-business (B2B) e-commerce platform with analytics capability offered as SaaS or on-premise software (see the Europe, Middle East and Africa snapshot, page 18). The hybris deal includes a mobile element, and Waze, obviously, has a strong smart mobility aspect, as do hundreds of Q213 deals. But only 1 top 10 deal was entirely focused on mobility: Chinese stateowned Tsinghua Holdings $1.4 billion deal for Spreadtrum Communications, a maker of mobile-phone chips (see the Asia-Pacific and Japan snapshot, page 16).

Security deals increase Similarly, we saw a jump in information security deals in Q213, with one making it into the top 10 deals of the quarter: Vista Equity Partners $903 million deal for Websense, whose data leakage prevention software filters web content and can block access to websites. The current trend is to integrate such capabilities into unified security software that addresses multiple threats to enterprise networks12 (see Top of mind, page 12). The second-largest disclosed-value deal was Intel Corporation unit McAfees $389 million deal for Stonesoft, a Finnish provider of next-generation firewalls and intrusion detection and prevention capabilities. Given the increasing security threats from the moves to mobile devices (including the bring-your-own-device trend) and the cloud, we noted nearly four dozen security deals in Q213, or roughly 7% of all deals, up from 3% in Q113 and 5% in full-year 2012.

Figure 4: Global technology transactions value flow by sector, Q213


$35,000

$33,391m $1,071 $1,543 CE 3% CPE 5% Internet 5% IT services 16%

$33,391m $838 $1,240 $3,431 $2,966 $1,314

CE 3% CPE 4% Internet 10% IT services 9% Semiconductors 4% Software/SaaS 17%

$30,000

$1,726 $5,339

$25,000
Deal value ($m)

$2,392 $20,000

Semiconductors 7% $5,520

$15,000

$4,189

Non-tech 12%

$10,000

$21,320

Software/SaaS 64%

$13,893 $5,000

PE 42%

$0 Target Buyer

CE = Communications equipment CPE = Computers, peripherals and electronics

PE and non-technology buyers together accounted for 54% of Q213 quarterly aggregate value, squeezing every other sector but one into net seller positions. PE buyers accounted for 47% of the CE value sold, 42% of the IT services value sold, 59% of the semiconductors value sold, 46% of the software/SaaS value sold and negligible percentages (if any) of the remaining sectors. From the perspective of PE spending, though, 70% ($9.7 billion) was concentrated in software/SaaS. Similarly, non-technology buyers concentrated 90% of their deal value in software/SaaS, almost all of which (97%, or $3.7 billion) came in two deals: Fidelity Nationals $2.9 billion announced deal for Lender Processing Services and The NASDAQ OMX Group, Inc.s $750 million deal for BGC Partners eSpeed platform, which offers online and mobile electronic trading software. The internet sector was the only other net buyer. Buyers are split spending 50-50 between their home sector and software/SaaS, mostly on the strength of two deals each. Targeting internet companies were Yahoos $1.1 billion deal for Tumblr and Baidu Inc.s $400 million announced acquisition of the online video business of PPStream Inc. Targeting software/SaaS were Googles $1.1 billion deal for Waze and real-estate website Trulia Inc.s $355 million announced acquisition of Market Leader Inc., which provides real-estate lead generation technology.
Note: percentages may not total 100 due to rounding. Source: EY analysis of The 451 Group Research M&A KnowledgeBase, accessed 3 July 2013. 8 Global technology M&A update: AprilJune 2013

APIs, MBaaS and devops In Q213, deals involving APIs, MBaaS and devops were small or had undisclosed values. But their strategic nature is apparent by the names of some buyers. And our data provider, The 451 Group, reports that Q213 API activity could signal the opening round for an API land grab by all IT vendors that rely on integration to add value to their respective offerings.13 Intel Corporation acquired two API-related software/SaaS companies in Q213, Mashery, Inc. ($180 million) and Aepona Ltd. ($120 million). CA Technologies Inc. acquired API management software company Layer 7 (no disclosed value). MBaaS, meanwhile, provides developers with mobile application development and hosting capability as a service and is typically accessed through APIs. Two very different kinds of companies that provide cloud-based services, Rackspace, Inc. and Salesforce.com, announced MBaaS offerings during Q213.14 Exemplifying the handful of MBaaS-related deals in Q213 was Facebook, Inc.s agreement to acquire Parse for $85 million. The deal should enhance Facebooks mobile commerce efforts by providing the capability to offer an end-toend mobility platform that can integrate third-party services and APIs, as well as go that extra mile in helping developers build mobile apps, according to The 451 Group.15

Exemplifying the devops trend, which accelerates new software releases by enhancing collaboration between an IT departments developers and operations, were undisclosed-value acquisitions by IBM, Microsoft and CA Technologies. Flash storage, 3D printing and small cells Deal volume in computers, peripherals and electronics (CPE) and communications equipment (CE) was small, but interesting. The top CPE deal by dollar-value was a $403 million announced plan by Stratasys Ltd., a leading maker of industrial-level 3D printers, to acquire Makerbot Industries LLC, which has pioneered lower-cost 3D printers (from $2,000 to $2,800 for one model).16 Also among CPEs top five deals were two in which the targets provide flash technology for data center performance acceleration, one by Western Digital Corporation ($340 million) and the other by Fusion-io, Inc. ($119 million). In CE, the top deal exemplified several we saw involving smallcell technology: Ciscos acquisition of Ubiquisys Ltd., a maker of small-cell radio transmitters that improve mobile service by sending and receiving data within a smaller area than outdoor towers. Theyre used to improve coverage in crowded areas such as stadiums and rail stations, as well as in homes.

Cross-border disclosed deal value falls 63% YOY to

$6.4 billion.

Notable divestitures
We noticed more corporate divestitures by technology companies in Q213 than Q113, more than three dozen in all. There were deals motivated by corporate restructurings to enable better focus on core competencies, such as two by VMWare, Inc. (one for $30 million and one with no disclosed value). There were also many deals that involved trends mentioned in this report and, therefore, might represent more opportunistic attempts to capitalize on the value of non-core assets. For example, Integrated Device Technology Inc. sold its enterprise flash controller business to PMC-Sierra Inc. for $100 million, and Alcatel-Lucent, S.A., sold its ProgrammableWeb unit, which offers a searchable directory of APIs, to start-up Mulesoft for no disclosed value. Similarly, Microsoft sold its Mediaroom IPTV service delivery technology for network operators to Ericsson, and Samsung sold its Liquavista electrowetting display technology, acquired in Q111, to Amazon.com, Inc.

Global technology M&A update: AprilJune 2013

Look ahead
In our Q113 report, we predicted gradual growth in technology deal M&A volume and value on the strength of our April 2013 Technology Capital Confidence Barometer (CCB) survey, which showed a significant increase in confidence among technology executives.

The strong overall deal value driven primarily by PE buyers was encouraging in the second quarter. I expect conditions such as low interest rates, lack of confidence among corporate buyers, the need for some technology companies to improve shareholder returns and PE firms dry powder to foster ongoing PE deal strength.
Joe Steger Global Technology Industry Transaction Advisory Services Leader EY

We were half right and encouraged, even, by the strength of big-ticket deals that drove Q213 aggregate value high enough to match last years second quarter. This level is about as high as weve seen in the last five years, aside from the second and third quarters of 2011 (which each had several megadeals). But we were surprised by the 5% sequential decline in global technology transaction volume to a level that hasnt been lower since 2009, especially in light of the five technology megatrends that are driving demand for related technologies and talent to help companies compete more effectively. That decline, along with the second consecutive quarterly failure of deal volume trends to align with NASDAQ growth, suggests to us that corporate technology buyers may remain on the sidelines until confidence and valuations improve. Apparently, the quantitative easing that some suggest is helping to drive increases in the NASDAQ and seller expectations around value cannot overcome corporate buyers low confidence, which explains the current and uncommon divergence between the NASDAQ and technology M&A. The low

corporate buyer confidence that is thwarting technology deal-making stems from a number of factors, including: ongoing macroeconomic and geopolitical uncertainty, unresolved regulatory, fiscal and tax issues and valuation gaps. On a positive note, low interest rates, lack of confidence among corporate buyers and the dry powder PE firms are believed to have on hand suggest ongoing PE technology deal-making strength. Given that PE strength, and our belief that Q213 volume was too low to sustain, were going to predict gradual growth in volume and value for the rest of 2013 again. If were right, technology may be running counter to the overall M&A trend for all industries, which we believe may be undergoing a fundamental reset to a lower level of long-term activity. We believe that continuous innovation around the five megatrends of smart mobility, cloud computing, social networking, big data analytics and accelerated technology adaptation (see sidebar, page 4) is happening too fast for corporate buyers to sit still for too long.

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Global technology M&A update: AprilJune 2013

For many technology segments, revenue from traditional products is falling faster than mobilesocial-cloud and big data analytics are growing. To reverse that trend, many companies will continue to look to M&A strategically as a way to catch up.
Joe Steger Global Technology Industry Transaction Advisory Services Leader EY

Consider the following questions and how the answers may impact deal-making over the next few quarters:
Will volume go up, down or stay flat? And will it realign with the NASDAQ? When will macroeconomic conditions and their impact on buyer confidence and valuations improve enough to reduce the risk of doing really big, transformative deals? Will cloud/SaaS deal-making continue to accelerate? To what extent will we see more deals to take private those technology companies weakened by the cloud/SaaS model and the other megatrends? Will APIs, MBaaS and devops continue to be major deal drivers? Are we at the beginning of a long-term increase in information security deals, given technology trends and growing public concern? Or, is the Q213 increase an aberration? Will non-technology companies, which acquired 12% of aggregate value in Q213 compared with only 1% in Q113, continue to be a significant presence, as they continue to adapt to the technology megatrends or become disrupted by them? In the absence of an improvement in global macroeconomic conditions, will CB volume and value continue to decline? Will advertising and marketing technology continue to be a major deal target? To what extent will activist shareholder involvement remain a factor in driving companies with depressed valuations to put themselves up for sale or divest underperforming business units? IPO activity appears to be increasing; will this drive up valuation expectations for technology M&A?

Global technology M&A update: AprilJune 2013

11

Fundamental changes to the technology stack caused by the five megatrends social-mobilecloud, big data and accelerated technology adaptation are adding new dimensions to enterprise security. As their networks become more permeable, and protecting all types of content becomes the biggest challenge, companies are focusing on securing the data itself.
Jeff Liu

Top of mind

Technology transformations, headlines drive security consolidation


This Top of mind article is even more top-of-mind than most, because many of the trends behind it are seen nearly every day in headline news. Stories about information security breaches and cyber espionage not only reflect the changes being caused by transformations resulting from the five technology megatrends (see sidebar, page 4), but also are a driver of enterprise security buyer behavior. Consequently, information security market growth is more than 50% higher than IT spending growth overall, and there has been a spike in consolidation among information security vendors.

For further information, contact:


Jeff Liu Senior Managing Director and Leader US Technology M&A Advisory Ernst & Young Capital Advisors LLC* Tel: +1 408 947 5588 E-mail: jeffrey.liu@ey.com

Mobile-social-cloud transforms security As Figure 5 shows, increasing use of cloud computing and mobile devices has transformed enterprise IT environments in ways that are significantly changing the information security landscape. The entirely closed and private enterprise network has become an historical artifact. Replacing it are borderless networks in which confidential information, including intellectual property (IP), is routinely stored outside the perimeter of the corporate network and transmitted to mobile devices via open airwaves. Exacerbating the issue is that the relatively new capabilities described above are empowering new behaviors, including increased levels of inter-company collaboration as an enabler of innovation across nearly all industries.1 That collaboration means corporate employees are sharing more information than ever before across company borders with partners in their value networks. In addition, the rise of bring your own device (BYOD) and of social networking (which encourages expanded participation in, and reduced control over, corporate communications) extend corporations information borders even further.

New security challenges emerge These technology-induced changes result in corporate IT environments that are far more powerful and far more difficult to secure. And the same changes that are empowering corporate innovation are challenging corporate security. As it becomes easier for employees to access information anywhere, on any device and at any time, it becomes easier for somebody to fraudulently access that data, says Vishal Tayal, Senior Vice President, US Technology Lead Advisory, M&A, Ernst & Young Capital Advisors LLC. At the same time, the nature of security threats is evolving, in part because the changes described above lead to additional opportunities for exploitation. Not too many years ago, the main threats were employees unintentionally giving away information or a password, or a hacker trying to gain attention. Today, attacks have become more complex and comprehensive, and are motivated by political activism, or are for profit, says Jim Reinhart, Managing Director, US Technology Lead Advisory, M&A, Ernst & Young Capital Advisors LLC. The rising numbers of security breaches making headlines in the last year or two are testament to all these changes. For security vendors, an immediate benefit is that the security products market will grow at a compound annual growth rate (CAGR) of 7.7% from 2012 to 2016, accelerating from a 6.9% CAGR during the previous four years.2 That compares with overall IT spending growth of just 4.9% in 2013.3

Jim Reinhart Managing Director US Technology Lead Advisory, M&A Ernst & Young Capital Advisors LLC Tel: +1 415 894 4205 E-mail: jim.reinhart@ey.com

Vishal Tayal Senior Vice President US Technology Lead Advisory, M&A Ernst & Young Capital Advisors LLC Tel: +1 415 894 8767 E-mail: vishal.tayal@ey.com

*Ernst & Young Capital Advisors LLC is a broker-dealer registered with FINRA and an affiliate of Ernst & Young LLP in the US.

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Global technology M&A update: AprilJune 2013

Enterprises seek end-to-end security solutions Another impact for security vendors is that corporate customers are reacting to the greater complexity of modern information security challenges by seeking single-source, end-to-end solutions providers that can hide the complexity and take on responsibility for the overall solution. That, in turn, is driving consolidation among providers of different types of security solutions, as they seek to achieve the product breadth and scale that customers seek. The main types of security solutions that customers seek to integrate are:4 1. Endpoint security: secures the endpoint of a corporate network from attacks and information leakage 2. Network security: protects corporate networks from disruption by external threats 3. Identity and access management (IAM): identifies users and controls access to information within a system 4. Security and vulnerability management (SVM): enables organizations to determine, interpret and improve risk posture 5. Messaging security: protects email, instant messaging and other collaboration applications 6. Web security: protects against web inbound (malware) and outbound (leakage) threats 7. Other: emerging security functions

Q213 M&A sees related security transaction spike In Q213, we noticed a spike in securityrelated transactions that exemplified the drivers described above. For example, an information security deal (Vista Equity Partners-Websense, $903 million) made it into the top 10 deals of the quarter (see Figure 1, page 5) for the first time since Q411, when a group led by Thoma Bravo LLC took Blue Coat Systems, Inc., private. The Websense deal had the highest premium of any top 10 deal for which a premium was available. Also of note, since going private, Blue Coat has added to its security offering via M&A; in Q213, it acquired Solera Networks, Inc., a network forensics and security analytics company and SSL appliance assets of Netronome Systems, Inc., for network inspection, both for undisclosed values. The second-largest Q213 security deal saw Intels McAfee unit add next-generation firewalls and intrusion detection and prevention capabilities via a $389 million deal for Finland-based Stonesoft. Also in Europe, Cassidian, a division of European Aeronautic Defense and Space Company N.V. (EADS), acquired unified threat management systems and software provider Arkoon Network Security, of France, for $19 million. Cassidian is a worldwide leader in global security solutions and systems. Arkoon provides anti-malware, anti-virus, endpoint, firewall, intrusion prevention and data leakage prevention capabilities.

In all, we noted nearly four dozen security deals in Q213, or roughly 7% of all deals, up from 3% (less than two dozen) in Q113 and 5% in full-year 2012. Several involved multiple acquisitions of point solutions by one company. Start strategy development early Because of the fast-changing dynamics of the security landscape, every security vendor no matter how broad or narrow its product line should already be thinking about how to manage its organic product development and transaction strategy to match the pace of rapid change.

Questions to consider Are your security offerings comprehensive i.e., do they cover all seven types mentioned above? Are your security offerings easily integrated i.e., will they seamlessly plug into most companies existing IT infrastructure? What are you doing to plan for the incorporation of rapidly evolving up-and-coming security requirements (e.g., mobile device and application management)?

Figure 5: Traditional enterprise environment and transformational themes

Cloud/virtualization Redefines systems, file/storage, security and endpoint Reorients business and sales models Redistributes total cost of ownership and vendor choke points Mobility Revolutionizes communication and collaboration (e.g., enterprise social media) Creates new security and management opportunities Magnifies data and storage requirements Borderless Increases threat vectors and magnifies potential impact Requires holistic IT management policies Favors integrated vendors or solutions providers (i.e., VARs, XaaS)

Data center

Endpoints

Closed perimeter

Source: EY analysis, 2013.

Global technology M&A update: AprilJune 2013

13

Regional snapshot: Americas

PE drives YOY value increase again


Americas aggregate value increased YOY in Q213 but volume continued to decline at an even faster rate than the global average. Companies innovating in cloud/SaaS, smart mobility, social networking, and advertising and marketing technology continued to be major deal targets.
Aggregate value rose 18% YOY to $27.7 billion, while global aggregate value was flat. Consequently, Americas share of global aggregate value climbed to 83%, compared with 78% for full-year 2012. It declined 8% sequentially, however, due to skew from the Dell deal in Q113. As in Q113, the increase in Americas value was entirely due to PE deals: PE aggregate value leapt 237% YOY to $11.5 billion in Q213, outweighing the 19% decrease in corporate aggregate value to $16.2 billion. Americas volume declined 19% YOY and 7% sequentially to 432 deals, compared with global decreases of 14% YOY and 5% sequentially. Americas volume was 74% of global volume for full-year 2012 but has declined to 71% in Q113 and 69% in Q213. Again, the volume picture would have been worse if not for PE volume growth, which partially offset corporate volume declines (see Figure 7, page 15). The largest deal by dollar-value, both in the Americas and globally, was the Bain-led deal to take BMC Software private (see Figure 6, page 15). Like Dell before it, BMC says it needs to move more aggressively to the cloud and believes that going private will enable it to do so.1 The other four of the top five Americas deals were corporate transactions. Fidelity National Financial agreed to pay $2.9 billion for Lender Processing Services, a provider of loan processing technologies with which Fidelity is very familiar. In 2008, the target spun out of Fidelity National Information Services, Inc., which itself spun out of Fidelity National Financial in 2006.2 The acquisition restores the presence of Fidelity National Financial in technology services for title insurance and mortgage servicing. Salesforce.coms completed $2.5 billion acquisition of ExactTarget highlighted the continuing trend of enterprise software/SaaS companies acquiring online and mobile advertising and marketing technologies. ExactTarget provides primarily email, but also social network and other digital marketing services. The last such deal to make it into the quarterly top 10 was Oracle Corporations Q412 acquisition of Eloqua, Inc., for $956 million. We saw more than four dozen such deals in Q213 (all much smaller or with undisclosed values), roughly twothirds of which involved Americas buyers. Behind this trend are increasing technology budgets overseen by marketing executives especially for cloud-based technologies.3 Accelerating cloud revenue growth was the driver for IBMs $2 billion deal for cloud infrastructure provider SoftLayer Technologies. IBM plans to create a new cloud services division that combines SoftLayer with existing IBM cloud technology to create a cloud platform that IBM will market globally to enterprises and smaller customers.4 Completing the top five was Yahoos $1.1 billion deal to acquire blogging-services site Tumblr. Overall, Americas buyers accounted for 73% of global cloud/SaaS deal volume and 84% of disclosed value. In smart mobility, Americas companies acquired 79% of global deal volume and 98% of disclosed value; in big data analytics, 73% of volume and roughly half the disclosed value. Although there were fewer health care IT deals in Q213 than in recent quarters, there were still roughly two dozen (with undisclosed values), nearly 90% of which involved Americas buyers.

Advertising and marketing are becoming more effective without being more bothersome to consumers by harnessing the power of mobile-social-cloud and big data analytics technologies. Thats why M&A activity around technologies that enable them will continue to increase.
Joe Steger Global Technology Industry Transaction Advisory Services Leader EY

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Global technology M&A update: AprilJune 2013

Americas aggregate PE deal value increased

237%
YOY in Q213.

Figure 6: Top five Americas deals, Q213 (corporate and PE)


Buyer Bain Capital/Golden Gate/GIC/Insight Venture Partners to acquire BMC Software, Inc. Fidelity National Financial, Inc. to acquire Lender Processing Services, Inc. Salesforce.com, Inc. acquired ExactTarget IBM Corporation acquired SoftLayer Technologies, Inc. Yahoo! Inc. acquired Tumblr Disclosed value ($m) $6,900 $2,900 $2,500 $2,000 $1,100 Announced 6 May 28 May 4 Jun 4 Jun 20 May Deal type PE Corporate Corporate Corporate Corporate Premium offered 3% 21% 58% N/A N/A

Figure 7: Americas transactions scorecard, Q213


Deals announced Corporate Number of deals announced Number of deals with disclosed values Total value of deals with disclosed values ($m) Average value of deals with disclosed values ($m) PE Number of deals announced Number of deals with disclosed values Total value of deals with disclosed values ($m) Average value of deals with disclosed values ($m) Corporate and PE Number of deals announced Number of deals with disclosed values Total value of deals with disclosed values ($m) Average value of deals with disclosed values ($m)
532 110 $23,372 $212 432 89 $27,685 $311 7% 20% 20% 33% 19% 19% 18% 47% 38 12 $3,420 $285 42 18 $11,533 $641 5% 80% 55% 75% 11% 50% 237% 125%

Q212

Q2 Q3

Q4

Q1 Q2

Q213

Sequential % change

YOY % change

494 98 $19,951 $204

390 71 $16,152 $227

9% 11% 76% 58%

21% 28% 19% 11%

Source: EY analysis of The 451 Group Research M&A KnowledgeBase, accessed 3 July 2013.

Global technology M&A update: AprilJune 2013

15

Regional snapshot: Asia-Pacific* and Japan

PE deals drive value increase; volume declines


More PE activity than weve seen in Asia-Pacific and Japan (APJ) in nearly two years helped APJ achieve the largest YOY aggregate value percentage increase of any region in Q213, although volume declined by more than the global average. Smart mobility and cloud/SaaS drove many of the regions deals.
APJ aggregate value climbed 31% YOY to $3.3 billion, compared with an 18% YOY rise in the Americas and a 68% decrease in EMEA. The APJ growth represented a 592% sequential increase from the relatively low Q113 aggregate value of $483 million. Notably, four PE deals (three with disclosed values), including two of the top five transactions, contributed $2.3 billion (69%) to Q213 aggregate value. APJ typically has zero, one or two PE deals. The last time APJ posted more PE disclosed value was in Q311, when Innovation Network Corporation of Japan acquired and combined the mobile display units of Hitachi, Ltd., Sony Corporation and Toshiba Corporation in a $2.6 billion deal. In the previous quarter, the largest APJ deal was just $220 million and no other transaction exceeded $100 million in disclosed value; in Q213, the largest deal was $1.4 billion and there were six deals of $100 million or more, together contributing $3.1 billion (93%) of the aggregate value seen in Figure 9 (page 17). APJ Q213 volume of 48 deals represented a decline of 16% YOY and 8% sequentially, slightly more than the global decreases of 14% and 5%, respectively. Deals related to smart mobility included the $1.4 billion agreement by governmentowned Tsinghua Holdings of China to acquire Spreadtrum Communications, which develops chipsets used in mobile phones and other devices. The deal is the largest global semiconductor acquisition of 2013, so far. Tsinghuas portfolio companies make a variety of consumer and business technology products. One of those companies was responsible for the APJ regions largest Q113 transaction, the $220 million deal mentioned above. It was a smart-mobility deal that targeted tablet maker Ereben Information Technology.1 In another deal linked to smart mobility, PE firms CITIC Capital of China and Singapores Temasek Holdings agreed to buy AsiaInfoLinkage for $890 million. AsiaInfo-Linkage provides customer-relationship management (CRM), billing, analytics and other solutions to telecom services providers in China. Another top five deal focused on online video, with Chinese internet search company Baidu agreeing to pay $370 million to acquire the video business of PPStream; Baidu plans to merge the acquired business with its existing online-video platform.2 In another top five deal, Funai Electric Company Ltd. agreed to acquire inkjetprinter technology and assets, including patents, from Lexmark International, Inc., for $100 million. The deal with Funai, which has been manufacturing inkjet printers for Lexmark since 1997, completes Lexmarks exit from the inkjet printer business, allowing it to focus more on its software and services, including content management.3 Rounding out the top five deals is a $113 million deal in which the Australian accounting software company, MYOB Finance, acquired New Zealand-based BankLink, whose process automation software enables data transfer among financial institutions, accounting practices and small businesses.

Asia-Pacific and Japan companies positioned themselves in Q213 for further growth by focusing on the smart mobility megatrend, and by acquiring valuable business assets internationally.
Ben Kwan Transaction Advisory Services Leader Asia-Pacific EY

*Asia-Pacific includes India. 16 Global technology M&A update: AprilJune 2013

PE contributes

69%
($2.3 billion) of APJ aggregate value.

Figure 8: Top five Asia-Pacific and Japan deals, Q213 (corporate and PE)
Buyer Tsinghua Holdings Co. Ltd. to acquire Spreadtrum Communications, Inc. CITIC Capital Holdings Limited/Temasek Holdings to acquire AsiaInfo-Linkage, Inc. Baidu, Inc. to acquire PPStream, Inc. MYOB Finance NZ Ltd. (a subsidiary of MYOB Holdings Pty Ltd.) acquired BankLink from Media Transfer Services Ltd. Funai Electric Company Ltd. to acquire inkjet-printer technology and assets, including patents, from Lexmark International, Inc. Disclosed value ($m) $1,389 $890 $400 $113 $100 Announced 21 Jun 13 May 25 Apr 14 May 2 Apr Deal type PE PE Corporate Corporate Corporate Premium offered N/A 5% N/A N/A N/A

Figure 9: Asia-Pacific and Japan transactions scorecard, Q213


Deals announced Corporate Number of deals announced Number of deals with disclosed values Total value of deals with disclosed values ($m) Average value of deals with disclosed values ($m) PE Number of deals announced Number of deals with disclosed values Total value of deals with disclosed values ($m) Average value of deals with disclosed values ($m) Corporate and PE Number of deals announced Number of deals with disclosed values Total value of deals with disclosed values ($m) Average value of deals with disclosed values ($m) 57 15 $2,551 $170 48 11 $3,340 $304 8% 31% 592% 913% 16% 27% 31% 79% 2 0 $0 $0 4 3 $2,293 $764 N/A N/A N/A N/A 100% N/A N/A N/A 55 15 $2,551 $170 44 8 $1,047 $131 15% 50% 117% 337% 20% 47% 59% 23% Q212 Q2 Q3 Q4 Q1 Q2 Q213 Sequential % change YOY % change

Source: EY analysis of The 451 Group Research M&A KnowledgeBase, accessed 3 July 2013.

Global technology M&A update: AprilJune 2013

17

Regional snapshot: Europe, Middle East and Africa (EMEA)

Volume climbs but total value falls


EMEA was the only region to increase deal volume in Q213, although value fell by more than the global average. As also seen in the Americas, the big deal drivers of mobile-social-cloud and big data analytics were joined here by advertising and marketing technologies.

Volume rose 6% YOY to 147 deals in EMEA, compared with a global average decline of 14%. But aggregate value fell by 68% YOY to $2.4 billion, compared with a global average that was flat YOY. The size of the EMEA decline was primarily because the year-ago quarter included the $4.5 billion SAP-Ariba deal, without which aggregate value would have fallen only 20%. Sequentially, EMEA volume and value both climbed, by 4% and 73%, respectively. This sequential increase in value continued the remarkable pattern of alternating up and down quarters that we have observed for more than two years. The most recent 12 months of that pattern are shown in the micro plotline for total deal value in Figure 11 (page 19).

that helps businesses manage global manufacturing networks, was just one of four Dassault Systmes deals in Q213 (and the only one with a disclosed value). Apriso expands Dassault Systmes beyond its 3D design software into manufacturing software. In all, the deals position Dassault Systmes for continued growth, particularly in its emerging market operations, such as in China.2 Rounding out the top five deals were two non-technology buyers of technology companies. In security, Tyco International acquired Exacq Technologies for $150 million a deal that will add Exacqs video-surveillance technology to Tycos range of physical premises security offerings. The last top five deal illustrated the value of big-data analytics in life sciences, where techniques, such as automated gene sequencing, are generating vast amounts of data faster than it can be analyzed. Netherlands-based QIAGEN, a nontechnology provider of laboratory sample and assay products, acquired Ingenuity, which offers a knowledge base and analytics tools that researchers can use to interpret and analyze complex biological data.3 Despite these four deals, Americas companies purchased far more value from EMEA targets than EMEA did from the Americas. Americas companies purchased $2.8 billion (67%) of the $4.2 billion in CB value sold by EMEA companies, representing a 279% sequential increase over Q113 but a 53% decline YOY. Q213 deals included Googles $1.1 billion purchase of Waze and Canada-based PE firm OMERS Capital Partners $607 million deal to acquire Civica plc, a UK specialist IT and business process services provider to the public sector. EMEA volume purchased by Americas companies declined 39% YOY and 9% sequentially to 48 deals, with US companies buying 45 of those deals.

EMEA buyers targeted growth in Q213, whether through technologies such as big data analytics or advertising and marketing, or by positioning themselves for opportunities in emerging markets.
Staffan Ekstrm Transaction Advisory Services Leader EMEIA EY

Of note, the largest EMEA deal of Q213 SAP-hybris is somewhat similar to last years SAP-Ariba deal (though smaller). Ariba offered B2B e-commerce SaaS and a B2B online collaboration network or marketplace. Switzerland-based hybris marketing technology is a different B2B e-commerce platform, delivered as SaaS or on-premise, with analytics capability that SAP plans to integrate with its HANA in-memory real-time analytics technology to deliver detailed customer insights.1 Also during Q2, SAP acquired KMS Software for an undisclosed value; KMS is a SaaS provider that helps businesses to manage the process of on-boarding new employees. The other four of the top five transactions by EMEA purchasers targeted US companies. Like SAP-hybris, IT services firm Accentures completed $316 million acquisition of Acquity Group also focused on marketing technology. Acquity provides online marketing campaign creation and management, including social media marketing. Dassault Systmes $205 million agreement to acquire Apriso Corporation, a provider of software

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Global technology M&A update: AprilJune 2013

EMEA was the only region to increase deal volume,

by 6% YOY.
Figure 10: Top five Europe, Middle East and Africa deals, Q213 (corporate and PE)
Buyer SAP AG acquired hybris AG Accenture plc acquired Acquity Group Ltd. Dassault Systmes S.A. acquired Apriso Corporation Tyco International Ltd. acquired Exacq Technologies, Inc. QIAGEN N.V. to acquire Ingenuity Systems, Inc. Disclosed value ($m) $1,000 $316 $205 $150 $105 Announced 5 Jun 17 May 29 May 19 Jun 29 Apr Deal type Corporate Corporate Corporate Corporate Corporate Premium offered N/A 86% N/A N/A N/A

Figure 11: Europe, the Middle East and Africa transactions scorecard, Q213
Deals announced Corporate Number of deals announced Number of deals with disclosed values Total value of deals with disclosed values ($m) Average value of deals with disclosed values ($m) PE Number of deals announced Number of deals with disclosed values Total value of deals with disclosed values ($m) Average value of deals with disclosed values ($m) Corporate and PE Number of deals announced Number of deals with disclosed values Total value of deals with disclosed values ($m) Average value of deals with disclosed values ($m) 139 33 $7,451 $226 147 34 $2,367 $70 4% 21% 73% 43% 6% 3% 68% 69% 12 3 $1,085 $362 11 1 $67 $67 83% 75% 69% 24% 8% 67% 94% 81% 127 30 $6,366 $212 136 33 $2,300 $70 0% 38% 99% 46% 7% 10% 64% 67%

Q212

Q2 Q3

Q4

Q1 Q2

Q213

Sequential % change

YOY % change

Source: EY analysis of The 451 Group Research M&A KnowledgeBase, accessed 3 July 2013.

Global technology M&A update: AprilJune 2013

19

20

Global technology M&A update: AprilJune 2013

Appendix of additional charts


22 Global technology corporate and PE transactions scorecard by sector 23 Cross-border corporate and PE transactions scorecard by sector 24 Global corporate and PE deals by acquiring country: cross-border and in-border 25 Cross-border deal value flow for technology deals

Global technology M&A update: AprilJune 2013

21

Software/SaaS achieves highest quarterly average value; CPE is only sector to increase volume YOY

Figure 12: Global technology corporate and PE transactions scorecard by sector, Q213
Number of deals Q212 Q2 Q3 Q4 Q1 Q2 Q213 Sequential % change YOY % change Average value ($m) Q212 Q2 Q3 Q4 Q1 Q2 Q213 Sequential % change YOY % change

Corporate deals by sector (based on target sector) CE CPE Internet IT services Semiconductors Software/SaaS Total 39 29 143 150 31 284 676 12 38 77 146 26 271 570 50% 14% 86% 7% 1% 10% 69% 46% 16% 16% 5% 3% 31% $176 $324 $213 $185 $166 $188 $202 $114 $101 $191 $135 $124 $223 $174 53% 25% 46% 67% N/A 51% 35% 69% 10% 27% 25% 14% 52% 19%

15%

516%

313%

PE deals by sector (based on target sector) CE CPE Internet IT services Semiconductors Software/SaaS Total Total deals by sector CE CPE Internet IT services Semiconductors Software/SaaS Total 43 33 155 156 34 307 728 16 43 90 154 28 296 627 33% 4% 9% 63% 42% 18% 14% 4% 1% 30% $171 $328 $224 $211 $155 $191 $211 $134 $96 $144 $198 $239 $350 $249 43% 96% 4% 22% 71% 36% 54% 83% 18% 6% 4 4 12 6 3 23 52 4 5 13 8 2 25 57 N/A 0% 225% 100% 32% 24% 53% 0% 25% 33% 9% 8% $110 $380 $291 $538 $5 $296 $300 $167 $35 $1 $558 100% 138% 91% 4%

-86%

100%

33% 10%

$1,080 2,104% $631 65%

$701 1,302% 13,920%

265% 110%

19% 87% 5% 1%

397% 42%

548% 19%

CE = Communications equipment CPE = Computers, peripherals and electronics

The left side of Figure 12, above, shows how the current three consecutive quarters of declining global technology M&A deal volume breaks down by sector. Transaction volume is down YOY by 14% overall, and fell in every sector except CPE. That is no big victory, however, since the Q212 number being compared to (33 deals) is the lowest quarterly CPE volume in more than three years, since Q309.* Sequentially, just semiconductors and software/SaaS managed to increase deal volume over the doldrums of Q113. Average value results were much more encouraging, especially taking into account the Q113 skew from the Dell megadeal. The figure shows overall average value up 18% YOY but down 19% sequentially; excluding the Dell deal, the $249 million Q213 average value would represent a 142% increase over Q113. The four sectors showing sequential increases each had one or more deals above $1 billion, while the two that declined (CE and CPE) did not. There were five such deals in the software/SaaS sector, including the $6.9 billion deal to take BMC Software private. Consequently, software/SaaS was the only sector to achieve its highest average of the last four quarters in Q213 in fact, at $350 million per deal, the Q213 average for software/SaaS is at its highest in the five years we have collected this data.*
*Though based on two different data sources, we believe these comparisons are useful from a directional perspective. For a full explanation of our methodology, see page 27. Note: average value based on deals with disclosed values. Source: EY analysis of The 451 Group Research M&A KnowledgeBase, accessed 3 July 2013.

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Global technology M&A update: AprilJune 2013

CB volume and average value decline faster than in-border

Figure 13: CB corporate and PE transactions scorecard by sector, Q213


Number of CB deals Q212 Q2 Q3 Q4 Q1 Q2 Q213 Sequential % change YOY % change Average CB value ($m) Q212 Q2 Q3 Q4 Q1 Q2 Q213 Sequential % change YOY % change

Corporate CB deals by sector (based on target sector) CE CPE Internet IT services Semiconductors Software/SaaS Total 17 12 45 50 12 106 242 6 14 19 41 14 91 185 50% 22% 39% 75% 8% 1% 5% 65% 58% 18% 14% 17% 17% $269 $361 $53 $308 $68 $242 $233 $132 $101 $100 $70 $113 $139 $120 238% 461% 426% 44% 51% 51% 72% 89% 66%

77%

24%

216% 126%

43% 48%

PE CB deals by sector (based on target sector) CE CPE Internet IT services Semiconductors Software/SaaS Total Total CB deals by sector CE CPE Internet IT services Semiconductors Software/SaaS Total 18 13 48 52 12 112 255 6 15 22 43 14 95 195 50% 17% 31% 56% 10% 3% 9% 67% 54% 17% 15% $269 $361 $53 $308 $68 $265 $242 $132 $101 $100 $144 $113 $158 $143 238% 461% 488% 9% 51% 72% 89% 66% 1 1 3 2 0 6 13 0 1 3 2 4 10 N/A 200% 75% 33% 38% N/A 100% 0% 0% 0% N/A 33% 23% $0 $0 $0 $0 $0 $573 $573 $0 $0 $662 $607 $635 N/A N/A 183% 767% N/A N/A N/A N/A N/A 11% 6%

$0 100%

0 100%

$0 100%

452%

17% 15%

24%

222% 120%

79%

53%

40% 41%

CE = Communications equipment CPE = Computers, peripherals and electronics

After falling at roughly the same rate as IB deals for three consecutive quarters, the decline in CB deal volume accelerated past IB in Q213. Of the 101 deal YOY falloff in Q213 for all deals, 60 were CB deals and 41 were IB. Consequently, CB deals represented 31% of all-deal volume in Q213, down from 33% in each of the three preceding quarters and 35% in Q212. The 24% YOY and 10% sequential declines shown above compare with 14% and 5%, respectively, for all deals (see Figure 3, page 7). Semiconductors was the only sector to buck the downward trend both YOY and sequentially. Fifty percent of the semiconductor deals were CB in Q213, which is typical for the sector. Sequentially, CB average value bounced back from the lowest quarterly average value ($65 million in Q113) weve seen in the five years weve collected this data*, increasing 120% to $143 million. But that was not enough to reverse the 1.5-year trend of CB average value falling faster than all-deal average value. For the two years before Q312, CB average value was higher than all-deal; in Q312, it fell 9% below. The trend continues: CB average value was 32% lower than all-deal average value in Q412, 37% lower in Q113 (not counting the Dell deal) and now 43% lower in Q213. Of note, the 41% YOY decline shown in the chart above compares with an 18% YOY increase for all-deal average value (see Figure 3, page 7). We continue to believe that macroeconomic conditions are holding down CB deal volume and value more than IB due to the added complexity and risk inherent in CB transactions.
*Though based on two different data sources, we believe these comparisons are useful from a directional perspective. For a full explanation of our methodology, see page 27. Note: average value based on deals with disclosed values. Source: EY analysis of The 451 Group Research M&A KnowledgeBase, accessed 3 July 2013.

Global technology M&A update: AprilJune 2013

23

Corporate CB volume declines, but other countries partially offset US and UK falloff; PE CB deals fall 38%
Figure 14: Global corporate and PE deals by acquiring country: CB and IB, Q213
Corporate deals
Top countries Q212 deals Q2 Q3 Q4 Q1 Q2 Q213 deals % total deals No. IB deals 0%

Q213
50% 100% No. CB deals

US UK Canada Germany France India Sweden Netherlands Australia Ireland Japan Other Total PE deals
Top countries

451 45 39 11 12 16 11 5 4 7 20 55 676

355 52 33 16 15 15 12 8 7 7 7 43 570

62% 9% 6% 3% 3% 3% 2% 1% 1% 1% 1% 8% 100%

289 35 15 4 8 6 6 1 4 2 0 15 385 Q213

66 17 18 12 7 9 6 7 3 5 7 28 185

Q212 deals

Q2

Q3

Q4

Q1

Q2

Q213 deals

% total deals

No. IB deals 0%

50%

100% No. CB deals

US UK Canada China/Hong Kong Other Total

35 7 3 0 7 52

37 8 5 2 5* 57

65% 14% 9% 3% 9% 100%

34 4 4 2 3 47

3 4 1 0 2 10

Corporate CB deal volume fell only 8% sequentially, to 185 deals in Q213 from 200 in Q113, despite a 20% falloff by the US and 19% by the UK. Among the countries that made up the difference by holding steady or increasing in corporate CB deals were Canada (55% of deals were CB), Germany (75% CB), India (60% CB), Sweden (50% CB), the Netherlands (88% CB), Australia (43% CB), Ireland (71% CB) and Japan, which did all seven of its deals across borders. Consequently, the US fell to 36% of corporate CB deals from 41% in Q113, while the UK fell to 9% from 11%. France, meanwhile, did 7 corporate CB deals in Q213 after doing 15 in the previous quarter. Although all-deal PE volume (CB + IB) rose 24% sequentially in Q213, PE CB volume fell to 10 deals from 16 (38%). In this case, the US declined to three PE CB deals in Q213 from eight in Q113, and the other countries did not make up for the falloff. UK PE deal-makers, however, did increase to four deals in Q213 from just one in Q113. The 16 PE CB deals of Q113 were unusually high, given the recent trends for example, higher than in any 2012 quarter.
*Additional countries with one PE deal in Q213: Finland, Germany, Latvia, Singapore and South Korea. Source: EY analysis of The 451 Group Research M&A KnowledgeBase, accessed 3 July 2013.

24

Global technology M&A update: AprilJune 2013

Total CB value doubles but remains below historical level; Europe and Asia-Pacific are biggest sellers for second consecutive quarter
Figure 15: CB deal value flow for technology deals (disclosed value), Q213 versus Q113 Q213
100% CB value sold $6.4b

CB value acquired $6.4b

Q113
100%

CB value sold $3.2b

CB value acquired $3.2b

80% Europe 47%

Europe 32%

80%

Europe 33%

Europe 30%

60%

60%

US 11% US 41%

40%

US 18%

US 51%

40%

Asia-Pacific 30%

Asia-Pacific 12% 20% Japan 3% Other 17% Japan 5% 0% India 2% 0% Canada 2% Canada 10% Other 15% Japan 4% India 3% 20% Canada 10% Japan 1% Canada 21%

Asia-Pacific 1%

Other 1%

At $6.4 billion, CB aggregate value bounced back from a 5-year low of $3.2 billion in Q113 but fell 63% YOY and remained 20% below the lowest 2012 quarter ($8 billion in Q412). CB value was just 19% of global all-deal aggregate value, compared with 41% for full-year 2012. For the first time in two years, the US and Europe did not switch positions as net buyer and seller. The US was a net buyer in Q113 and Europe a net seller; in Q213, the US increased the margin by which it was a net buyer, while Europe increased its margin as a net seller. The largest CB deal by dollar value was Googles $1.1 billion acquisition of Israels Waze, representing 98% of the value sold by countries in the Other category. European companies were the largest buyers of European CB deals in Q213, acquiring 41% ($1.3 billion) of the European CB value sold. Seventyeight percent of that inter-European value came in one deal: the $1 billion SAP-hybris deal, which was the second-largest CB transaction of Q213. The US acquired 35% ($1.1 billion) of European value sold in nine deals, the largest of which was McAfees $389 million announced deal for Finnish cybersecurity company Stonesoft. Canadian companies acquired 21% ($640 million) of European CB value. Most of the Canadian value was in one PE transaction: OMERS Capital Partners $607 million deal for UK-based Civica, a UK specialist IT and business process services provider to the public sector. Rounding out the buyers of European value was Indias Tata Consultancy Services $97 million deal for Alti SA, a French systems integrator also operating in Belgium and Switzerland. Europe buyers purchased $815 million (70%) of the US value sold in five deals, the largest of which was Accenture-Acquity at $316 million (see EMEA snapshot, page 18). US companies bought all of the $784 million CB value sold by Asia-Pacific in five separate transactions.
Note: percentages may not total 100 due to rounding. Source: EY analysis of The 451 Group Research M&A KnowledgeBase, accessed 3 July 2013.

Global technology M&A update: AprilJune 2013

25

Source notes
Rising PE, megatrends and their enablers drive Q213 technology M&A
1 14

US Deal Flow to Remain Stagnant for Remainder of 2013, EY press release, 8 July 2013. BMC deal aims for the cloud; Private investors offer $6.9 billion with goal of developing technology, The Houston Chronicle, 7 May 2013, via Factiva, 2013 Dow Jones & Company, Inc. Global technology M&A update: JanuaryMarch 2013, EY, 2013 EYGM Limited. BMC deal aims for the cloud; Private investors offer $6.9 billion with goal of developing technology, The Houston Chronicle, 7 May 2013, via Factiva, 2013 Dow Jones & Company, Inc. Microsoft To Partners: We Need You To Migrate To The Cloud, CRN, 12 July 2013, via Factiva, 2013 Dow Jones & Company, Inc. Top 10 Things To Know About Ciscos Push To The Cloud, CRN, 10 June 2013, accessed via CRN.com. How 10 VARs Became Cloud Computing Superstars, CRN, 8 February 2013, accessed via CRN.com. Salesforce.com Acquires ExactTarget, Entertainment Close-up, 18 July 2013, via Factiva, 2013 Dow Jones & Company, Inc. The Morning Download: CIOs Must Step Up Their Game, The CIO Report, 21 December 2012, via Factiva, 2013 Dow Jones & Company, Inc. Report: FTC reviewing Googles acquisition of Waze, SNL Kagan Media & Communications Report, 25 June 2013, via Factiva, 2013 Dow Jones & Company, Inc. Yahoo Deal to Buy Tumblr Shows Power Shift, Dow Jones Top North American Equities Stories, 20 May 2013, via Factiva, 2013 Dow Jones & Company, Inc. Vista Equity Partners to Buy Websense, The Wall Street Journal Online, 20 May 2013, via Factiva, 2013 Dow Jones & Company, Inc. 451 M&A KnowledgeBase Daily, 451 Research LLC, 24 April 2013, 2000-2013 451 Research LLC.

Cloud vendors add MBaaS and mobile app development tools for the enterprise, 451 Research LLC, 15 April 2013, 2000-2013 451 Research LLC. Facebook bets on MBaaS as it buys Parse for mobile apps, 451 Research LLC, 26 April 2013, 2000-2013 451 Research LLC. 3-D Printing Leader Stratasys to Buy Makerbot, The Wall Street Journal Online, 19 June 2013, via Factiva, 2013 Dow Jones & Company, Inc.

Regional snapshot: Asia-Pacific and Japan


1

Global technology M&A update: January-March 2013, EY, 2013 EYGM Limited. Baidu Acquires Online Video Business of PPS for US $370 Million to Create Chinas Largest Online Video Platform, Investment Weekly News, 25 May 2013, via Factiva, 2013 Dow Jones & Company, Inc. Funai takes over Lexmark inkjet business, BusinessWorld, 9 May 2013, via Factiva, 2013 Dow Jones & Company, Inc.

15

16

Top of mind: Technology transformations, headlines drive security consolidation


1

Regional snapshot: Europe, Middle East and Africa


1

Worldwide IT Security Products 2012-2016 Forecast and 2011 Vendor Shares: Comprehensive Security Product Review, IDC, November 2012, 2012 IDC. IDC Analyst Connection: Secure, Compliant Collaboration in the Cloud, IDC, March 2012, 2012 IDC. IDC Lowers Expectations for IT Spending as Sequester and Global Economic Uncertainty Take a Bite Out of Business Confidence, IDC Press Release, 14 May 2013, 2013 IDC. Worldwide IT Security Products 2012-2016 Forecast and 2011 Vendor Shares: Comprehensive Security Product Review, IDC, November 2012, 2012 IDC.

SAP to Acquire hybris to Deliver Next-Generation Customer Experience, ENP Newswire, 6 June 2013, via Factiva, 2013 Dow Jones & Company, Inc. 451 M&A KnowledgeBase Daily, 451 Research LLC, 25 April 2013, 2000-2013 451 Research LLC. Qiagen Acquires Ingenuity Systems for $105 Million, GlobalData Financial Deals Tracker, 30 April 2013, via Factiva, 2013 Dow Jones & Company, Inc.

Regional snapshot: Americas


1

10

BMC deal aims for the cloud; Private investors offer $6.9 billion with goal of developing technology, The Houston Chronicle, 7 May 2013, via Factiva, 2013 Dow Jones & Company, Inc. Fidelity National Agrees to Buy Lender Processing for $2.9 Billion, Dow Jones Top North American Equities Stories, 28 May 2013, via Factiva, 2013 Dow Jones & Company, Inc. Salesforce.com Acquires ExactTarget, Entertainment Close-up, 18 July 2013, via Factiva, 2013 Dow Jones & Company, Inc. IBM To Acquire SoftLayer To Accelerate Adoption Of Cloud Computing In The Enterprise, Dow Jones News Service, 4 June 2013, via Factiva, 2013 Dow Jones & Company, Inc.

11

12

13

26

Global technology M&A update: AprilJune 2013

Methodology
Global technology M&A update: April June 2013 is based on EYs analysis of The 451 Group M&A KnowledgeBase data for 2012 and 2013. Deal activity and valuations may fluctuate slightly based on the date the database is accessed. Technology company M&A data was pulled from The 451 Group M&A KnowledgeBase based on the databases own classification taxonomy, and deals were then aligned to the following sectors: CE, CPE, semiconductors, software/SaaS, IT services and internet companies. Alignment was based on the sector of the target company. The data includes M&A transactions between two technology companies, technology companies acquiring nontechnology companies, as well as non-technology companies acquiring technology companies. Joint ventures were not included. Corporate M&A activity data was analyzed based on the sector classification of the target company. Prior to 2012, we reported based on the classification of the acquiring company; the change enables a clearer picture of the technologies being focused on for acquisition. Equity investments that involved less than a 50% stake were not included in the data. PE M&A activity includes both full and partial stake transactions in excess of 50% and was analyzed based on acquisitions by firms classified as private equity, sovereign wealth funds, investment holding companies, alternative investment management groups, certain commercial banks, investment banks, venture capital and other similar entities. Unsolicited technology deal values were not included in the dataset, unless the proposed bid was accepted and the deal closed based on data available at the time of analysis. The value and status of all deals highlighted in this report are as of 30 June 2013, unless otherwise noted. All dollar amounts are in US dollars, unless otherwise indicated. In this report, disclosed deal values may vary from other published values because The 451 Group database methodology automatically subtracts cash acquired, net of debt, to arrive at enterprise value. Additionally, announced deal values are often subject to change at the time of close, due to subsequent revisions to the terms of the deal and/or changing stock valuations to the extent stock was used as a deal consideration. As used in this report, total value refers to the aggregate value of deals with disclosed values for the period under discussion. Definitions for multiple of and premium offered: TTM equals trailing 12 months. Multiple of EV/TTM revenue is the transaction value multiple representing total enterprise value over trailing 12 months of target revenue. Multiple of EV/TTM EBITDA is the transaction value multiple representing total enterprise value over trailing 12 months of target EBITDA (earnings before interest, taxes, depreciation and amortization). Premium offered represents the percentage difference between the purchase price and the share price value 30 days prior to the announcement of deal; where data is unavailable from The 451 Group, premium data was accessed via Capital IQ.

Global technology M&A update: AprilJune 2013

27

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Top of mind: Technology transformations, headlines drive security consolidation Jeff Liu US Technology M&A Advisory Jim Reinhart US Technology Lead Advisory, M&A Vishal Tayal US Technology Lead Advisory, M&A +1 408 947 5588 +1 415 894 4205 +1 415 894 8767 jeffrey.liu@ey.com jim.reinhart@ey.com vishal.tayal@ey.com

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