MARKET ANALYSIS Tech M&A and IPO Analysis Report IDC OPINION. Ryan Patterson

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1 MARKET ANALYSIS 2012 Tech M&A and IPO Analysis Report Dan Yachin Daniella Muallem Ryan Patterson Oren Raviv Efrat Drori IDC OPINION Global Headquarters: 5 Speen Street Framingham, MA USA P F Information and communication technology (ICT) exit activity stalled in After two consecutive years of substantial increase in M&A levels, the past year provided several indicators that point to a significant slowdown. Most notably, 2012 saw an increase in deal volume paralleled by a major drop in deal valuations, which can be largely explained by an increasing number of "fire sales" of distressed companies. In addition, we have seen an increase in asset sales as companies are moving to focus on core businesses, and a flurry of take-private deals as well as acquisitions by private equity (PE) firms that look to capitalize on the lower valuations. These trends were highly prominent in the recession years of and have faded in the following years. However, this does not necessarily mean that we are heading to a double dip in tech M&As as current levels are still far from what we have seen in those gloomy years. In addition, there are several positive trends most notably, the revolutionary change that the ICT industry is undergoing with the convergence of mobile, cloud, social, and Big Data technologies into a new model of computing that may keep the M&A market from falling into turmoil. Findings include: The impact of global macroeconomic conditions was highly noticeable in the total value of disclosed deals, which shrank from $235.9 billion in 2011 to $211.0 billion in 2012 a sharp decrease of more than 10.6%. The top spot in the list of most active buyers in 2012 was captured by Constellation Software, with 18 deals, carried out mainly in various vertical markets. After two consecutive years in which Google topped the most active buyers chart, the company was only second this year with 17 deals, comparing with its 28 and 27 acquisitions in 2011 and 2010, respectively. PE-backed M&A activity soared in 2012, totaling 230 deals compared with 180 deals in 2011 a 27.8% increase. The share of PE-backed transactions of all 2012 deals reached approximately 6% compared with approximately 5.4% in The total disclosed value of PE-backed deals reached $43.0 billion in 2012 compared with $39.2 billion in In addition, PE firms were involved in 17 billion-dollar-plus deals almost a third of all deals in this range. Despite early optimism with 18 companies going public in the first quarter of the year and the high hopes for Facebook's public offering, the year ended with 43 public debuts only a slight increase compared with the 39 IPOs of Filing Information: February 2013, IDC # Private Vendor Watch Service: Analysis

2 TABLE OF CONTENTS In This Study 1 Methodology... 1 Situation Overview Global ICT M&A and IPO Trends... 1 Tech M&A 2012 Analysis: Preparing for the 3rd Platform Enterprise Applications Enterprise IT Infrastructure Telecommunications Mobile Internet Semiconductors and Components IT Services Future Outlook 73 IPO and M&A Scenarios Essential Guidance 77 For Investors Learn More 80 Related Research P # IDC

3 LIST OF TABLES P 1 Top 20 M&As by Deal Value, Notable Private Equity Deals, Top ICT IPOs, Notable Enterprise Applications M&As, Notable IT Infrastructure M&As, Notable Telecommunications M&As, Notable Mobile M&As, Notable Internet M&As, Notable Semiconductors and Components M&As, Notable IT Services M&As, IDC #239406

4 LIST OF FIGURES P 1 Tech M&A Deal Volumes, 1Q10 4Q M&A Disclosed Deal Volume by Value Range, M&A Average Disclosed Deal Size and Disclosed Deal Volume, 1Q11 4Q M&A Breakdown by Sector, M&A Breakdown by Main Sectors, 3Q10 4Q Most Active Acquirers, M&A Deals Breakdown by Region, # IDC

5 IN THIS STUDY Methodology This IDC study provides an overview and analysis of M&A deals in 2012 across all major sectors of the information and communication technology industry, including enterprise IT infrastructure, telecommunications, enterprise, IT services, semiconductors and components, Internet, and mobile. It also discusses the different business, financial, and technology trends affecting M&A activities in the ICT industry. IDC's sister document, M&A Tech Deals Database, Full Year 2012 (IDC #239408, February 2013), tracks every tech deal by acquirer, target company, market, deal value, vertical industry, region, and more. Note: All numbers in this document may not be exact due to rounding. SITUATION OVERVIEW 2012 Global ICT M&A and IPO Trends Despite a decent increase of 14.2% in deal volume from 3,341 in 2011 to 3,815 in 2012, the passing year was not a successful one for tech M&A activity. As 2012 progressed, the impact of the slowing global economy became more pronounced, as deal volume gradually dropped from 1,002 in 1Q12 to 957, 948, and 908, respectively, in the following three quarters (see Figure 1) ended on a down note with only 281 deals in December, making it the slowest month of the year in terms of M&A volume. FIGURE 1 Tech M&A Deal Volumes, 1Q10 4Q12 Source: IDC, IDC #

6 The impact of global macroeconomic conditions was even more noticeable in the total value of disclosed deals, which shrank from $235.9 billion in 2011 to $211.0 billion in 2012 a sharp decrease of more than 10.6%. The opposite trend between deal volume and deal value is not surprising; in times of slow economy, we typically see an increase in the number of deals, driven mainly by more "fire sales" of troubled companies, asset acquisitions where companies sell out non core activities or lines of business to raise cash. In addition, in such times, PE firms are more involved in take-private deals to capitalize on lower valuations. Similarly to the recession period of , there were plenty of deals along these lines in On the other hand, some signs of optimism can be seen in the fact that deal values have largely improved as 2012 progressed. After spiking to $82.8 billion in 3Q11, the total disclosed deal value was cut by more than a half in the last quarter of 2011 to $37.3 billion started where 2011 ended as deal value marked a small increase to $40.3 billion in 1Q12. The upward trend in deal value continued in 2Q12 with $53.2 billion. After slightly decreasing in 3Q12 with $49.6 billion, the deal value in 4Q12 saw a considerable increase to $67.9 billion. Furthermore, the average disclosed deal size increased as the year progressed with $ million, $ million, and $ million, respectively, in the first three quarters of the year and climbed to $ million in 4Q12 the highest level since optimistic 3Q11, when average disclosed deal size reached $ million. Year on year, the total disclosed deal value in 4Q12 has more than doubled compared with $ billion in 4Q11. The average disclosed deal size in 2012 reached $ million compared with $ million in 2011 a decrease of nearly 6.3%. The enterprise market accounted for the largest portion of disclosed deal value, with approximately $50.5 billion worth of deals. This was achieved despite a more than 11% year-on-year decrease from the $56.8 billion worth of disclosed enterprise deals in Mobile deals followed with $40.1 billion, down from $51.6 billion in Considering the fact that more than half of this sum was attributed to a single megadeal SoftBank's $20.1 billion acquisition of Sprint Nextel 2012 was a particularly slow year for mobile M&A activity. Telecom deals totaled $32.98 billion, up from $29.3 billion in Pushed by several megadeals announced throughout the year, Internet deals saw an increase of more than 50% from $16.5 billion in 2011 to $27.5 billion in The flurry of service provider networks megadeals has pushed the average mobile deal size in 2012 to $514.5 million compared with $458.8 in The most significant increase in average deal size was in the Internet sector, which almost doubled from $95.7 million in 2011 to $176.1 million in The semiconductors sector experienced a substantial drop in average deal size, from $434.7 million in 2011 to $275.5 million in 2012, while IT infrastructure and IT service maintained relatively similar level year on year. Figure 2 shows the M&A disclosed deal volume by value range for Figure 3 shows the M&A average disclosed deal size and disclosed deal volume from 1Q11 to 4Q12. 2 # IDC

7 FIGURE 2 M&A Disclosed Deal Volume by Value Range, 2012 Source: IDC, 2013 FIGURE 3 M&A Average Disclosed Deal Size and Disclosed Deal Volume, 1Q11 4Q12 Source: IDC, 2013 While the total disclosed value of 2012 deals decreased sharply, there was an increase in the number of billion-dollar-plus deals, totaling 53 compared with 48 and 2013 IDC #

8 42 in 2011 and 2010, respectively. However, despite the SoftBank Sprint Nextel megadeal, the total value of the top 20 deals decreased from $94.4 billion in 2011 to $80.1 billion in 2012 (see Table 1). TABLE 1 Top 20 M&As by Deal Value, 2012 Deal Date Acquirer Target Company Value ($M) Secondary Segment Vertical Industry October 15, 2012 SoftBank Sprint Nextel 20,100 Mobile Service provider networks July 18, 2012 BC Partners, CPP Investment Board, and Suddenlink's Suddenlink Communica tions 6,600 Telecom Service provider networks March 15, 2012 Cisco Systems NDS Group 5,000 Telecom IPTV/video Video software July 12, 2012 Dentsu Aegis Group 4,900 Internet Online advertising Creative May 22, 2012 SAP Ariba 4,300 Enterprise Supply chain January 30, 2012 ABB Thomas & Betts 3,900 Semiconductors and components Connectors August 15, 2012 The Carlyle Group and Getty Images Getty Images 3,300 Internet ecommerce Destination May 27, 2012 France Telecom Mobinil 3,150 (94%) Mobile Service provider networks Credit February 17, 2012 Advent International and GS Capital Partners TransUnion 3,000 Enterprise Vertical May 31, 2012 CGI Group Logica 2,610 IT services Consulting 4 # IDC

9 TABLE 1 Top 20 M&As by Deal Value, 2012 Deal Date Acquirer Target Company Value ($M) Secondary Segment Vertical Industry October 16, 2012 ASML Holding Cymer 2,600 Semiconductors and components Lithography May 7, 2012 Micron Technology Elpida Memory 2,500 Semiconductors and components DRAM November 26, 2012 Apollo Global Management McGraw-Hill Companies assets (McGraw- Hill Education) 2,500 Enterprise Vertical July 2, 2012 Dell Quest Software 2,400 IT infrastructure System and network December 20, 2012 Arris Group Google assets (Motorola Home) 2,350 Telecom IPTV/video Meter data June 29, 2012 Melrose Elster 2,300 Enterprise Smart grid Finance October 1, 2012 SoftBank eaccess 2,300 Mobile Service provider networks Fiber March 19, 2012 Zayo Group (backed by GTCR) AboveNet 2,200 Telecom Service provider networks March 19, 2012 Vista Equity Partners Misys 2,100 Enterprise Vertical Finance September 19, 2012 Blackstone Group Vivint 2,000 Sensor systems Home automation Mobile devices Source: IDC, 2013 Enterprise remained the most active sector in terms of deal volume, marking a considerable year-on-year increase of close to 10%, from 874 deals in 2011 to 960 deals in Internet deals followed with an increase of more than 10% 2013 IDC #

10 To continue reading, or to receive more information on future Tech M&A Analysis Reports, please contact Mathew Wisniewski at or by phone at