U.S. Bancorp Piper Jaffray
Technology/Communications M&A Weekly
November 18, 2002
Technology/Communications Mergers & Acquisitions
David Jacquin - Managing Director, Group Head, 415-277-1505, djacquin@pjc.com
Hugh Hoffman - Managing Director, 612-303-6319, hhoffman@pjc.com
Jason Hutchinson - Managing Director, 415-277-1510, jhutchinson@pjc.com
Steve Rickman - Managing Director, 612-303-6258, srickman@pjc.com
Eric Nicholson - Principal, 612-303-6378, enicholson@pjc.com
Selected Technology M&A Transactions
(Approximate valuations, $ in millions)
Date Target / Advisor
11/12/02 InterTrust Technologies Corp
11/15/02 Consumer Network Services (EDS)
11/13/02 Terraspring Inc
11/12/02 American Management-Energy
11/13/02 Inktomi-Search Software / CSFB
*Assumes enterprise value equal to equity value.
Acquiror / Advisor
Fidelio Acquisition Co LLC
Fiserv (#)
Sun Microsystems Inc (#)
Wipro Ltd / MSDW
Verity Inc / SG Cowen
Trans.
Value
$448.6
$320.0
$35.0
$26.0
$25.0
Ent.
Value
LTM
Sales
$323.8
$11.7
$320.0 * $150.0
NA
NA
NA
NA
NA
NA
EV /
Sales
NM
2.1x
NA
NA
NA
1-Week
Premium Universe
30.8% Technology and Business Services
NA Technology and Business Services
NA Software Infrastructure
NA Other
NA Software Applications
Comments
Sony and Phillips acquire intellectual property holder InterTrust.
Provide electronic fund transfer (EFT) services.
Developer of infrastructure automation software.
Acquisition enhances Wipro's Energy & Utility IT service offerings.
Verity purchases Inktomi's enterprise search software business.
Selected Communications M&A Transactions
(Approximate valuations, $ in millions)
Date Target / Advisor
11/12/02 Corning Prec. Lens/JPM/Goldman
11/17/02 Asia Global Crossing
11/13/02 Arris Interactive LLC-Cert Ast
Acquiror / Advisor
3M Co / Lehman Brothers
China Netcom
Scientific-Atlanta Inc (#)
Trans.
Value
$850.0
$270.0
$37.5
Ent.
Value
NA
NA
NA
LTM
Sales
NA
NA
NA
EV /
Sales
NA
NA
NA
1-Week
Premium Universe
NA Optical & Electronic Manufacturing Tech
NA Communication Services
NA Packet Infrastructure & Applications
Comments
3M purchases Corning Precision Lens for $850 million.
China Netcom investor group purchases Asia Global Crossing out of bankruptcy.
Scientific-Atlanta purchases Network Technologies business of Arris.
M&A Spotlight Transactions
11/13/02 - Fidelio Acquisition Company, LLC, a company formed by Sony Corporation of America, a subsidiary of Sony Corporation
(NYSE: SNE), Royal Philips Electronics (AEX: PHI, NYSE: PHG) and certain other investors, has executed a definitive agreement to acquire InterTrust Technologies Corporation (NASDAQ: ITRU). As a result of the transaction, Fidelio will acquire all of the outstanding common stock of InterTrust for approximately $453 million on a fully diluted basis or $4.25 per share.
The most important objective of the transaction is to enable secure distribution of digital content by providing wider access to InterTrust's key
Digital Rights Management (DRM) intellectual property on a fair and reasonable basis. InterTrust is a leading holder of intellectual property in
DRM. The company holds 26 U.S. patents and has approximately 85 patent applications pending worldwide. InterTrust's patent portfolio covers software and hardware technologies that can be implemented in a broad range of products that use DRM, including digital media platforms, web services and enterprise infrastructure.
InterTrust's Board of Directors has unanimously approved the acquisition and has determined that the transaction is advisable and in the best interest of its shareholders. All InterTrust board members owning shares, including Victor Shear, Founder and Chairman of the board of directors, have agreed to tender all their shares of InterTrust common stock, representing approximately 20% of the outstanding common stock, in favor of the transaction. The acquisition, which is subject to customary closing conditions, including regulatory approvals, is expected to close in early 2003.
"Throughout Sony on a global scale, we operate with a keen awareness that the future growth of the consumer electronics, computer and entertainment industries will be heavily influenced by the ability to transmit digital content in a secure environment," said Nobuyuki Idei,
Chairman and Chief Executive Officer of Sony Corporation. "This acquisition will significantly accelerate the ability to ensure secure delivery of digital content. This in turn will enable the development of many exciting new services for consumers and businesses."
"Sony is committed to creating an environment where digital content can be securely distributed and enjoyed," said Robert Wiesenthal,
Executive Vice President and Chief Strategy Officer of Sony Broadband Entertainment, Sony Corporation of America. "Through this transaction
InterTrust's important DRM patents will be more widely available on a fair and reasonable basis."
11/12/02 - 3M announced that it has entered into a definitive agreement to acquire Corning Precision Lens Inc., a wholly owned subsidiary of Corning Incorporated, for a gross price of $850 million in cash. Corning Precision Lens is the largest worldwide manufacturer of lens systems for rear projection televisions.
"This transaction affirms our strategy of accessing fast-growing markets by acquiring companies with strong market positions and technologies that we can leverage with our own strengths to drive faster long-term organic growth," said W. James McNerney, Jr., 3M chairman and CEO. "Combining this business with 3M Optical Systems Division will broaden our technology position in the global display industry."
"Adding Corning Precisions Lens' technology for rear projection televisions to 3M's full spectrum of display technologies enhances our business, and will accelerate our growth in the current and next generation consumer television applications," said Andy Wong, division vice president, 3M Optical Systems Division. "Lens systems for large-screen, rear-projection televisions are a great complement to our strong optical film capabilities, which are well-suited to the emerging consumer LCD television segment."
3M believes display components represent a multibillion-dollar growth opportunity. Digital videodiscs (DVDs) and high definition televisions (HDTVs) are driving the growth in this industry as more consumers purchase large-screen, rear-projection TVs to create a home theater experience. In 2002, CRT-based projection televisions represented 98 percent of unit sales in the large-screen, rearprojection television segment, which is expected to grow at a 35 percent compound annual growth rate through 2006; LCD televisions are expected to grow at a compound annual growth rate of 56 percent through this same period, according to the DisplaySearch
Quarterly Worldwide Flat Panel Forecast Report, Q2'02.
3M's expertise in display technology is reflected in its line of Vikuiti brand light management products that include proprietary microreplicated and multilayer display enhancement films for applications in electronic displays, such as LCD televisions, mobile phones, desktop monitors and notebook computers. 3M also supplies touch screens and systems, high-performance projection screens and precision optical components for a wide range of display applications.
(Data provided by company press releases, equity research, and U.S. Bancorp Piper Jaffray)
(Data provided by VentureSource)
Date Target / Advisor
11/11/02 TidalWire Inc / Covington Assoc.
11/12/02 Chip Engines
11/14/02 Lightwave
11/12/02 Evant
11/12/02 Revenio
11/12/02 OnRamp
11/11/02 Personify
11/11/02 Versient
Acquiror / Advisor
Network Engines Inc / Needham
Alliance Semiconductor Corp
Looking Glass Networks
Nonstop Solutions
Vignette (#>)
Onset Technologies
Accrue Software
Shamrock Companies
The VC Liquidity Corner
Trans.
Last
Total
Capital Raised
Value Post $ Val.
Step-up to Date ROIC
$20.0
NA
NA
NA
NA
NA
NA
NA
NA
$17.5
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
$8.4
NA
$12.0
$43.0
$14.5
$48.0
$10.0
NA
NA
NA
NA
NA
NA
NA
NA
Universe
Technology and Business Services
Computer Hardware & Semiconductors
Communication Services
Software Applications
Software Applications
Wireless Equipment
Software Infrastructure
Technology and Business Services
Venture Capitalist
Ascent Venture Partners
Alliance Venture Mgmt
Management
Mobius Venture Capital
Comdisco Ventures
Intel Comm. Fund
ABS Ventures
Abell Venture Fund
Last Week
Q1 2002
Q2 2002
Q3 2002
Q4 2002
YTD 2002
M&A
8
79
83
76
44
282
IPO
1
5
10
1
3
19
M&A
/ IPO Split
89% / 11%
94% / 6%
89% / 11%
99% / 1%
94% / 6%
94% / 6%

U.S. Bancorp Piper Jaffray
Technology/Communications M&A Weekly
November 18, 2002
Technology/Communications Mergers & Acquisitions
David Jacquin - Managing Director, Group Head, 415-277-1505, djacquin@pjc.com
Hugh Hoffman - Managing Director, 612-303-6319, hhoffman@pjc.com
Jason Hutchinson - Managing Director, 415-277-1510, jhutchinson@pjc.com
Steve Rickman - Managing Director, 612-303-6258, srickman@pjc.com
Eric Nicholson - Principal, 612-303-6378, enicholson@pjc.com
Private Equity/LBO Analysis
Spre ad (LIBOR) Fo r Leverag ed Buyo uts Senior Bank Loans
By De al Size
400
$70
$60
Buyout Funds Rais ed
$63.3
$55.4
350
344
334
363
351
$50
$36.9
300
306
294
316
309
$40
$30
$34.5
$34.5
250
277
251
264
242
257
238
$20
$11.7
$18.4
$23.2
$19.3
$5.3
$6.0
200
$10 $6.50
1996 1997 1998
Less than $100 Million
1999 2000
$100 Million to $250 Million
2001 2002 Q2
$0
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 YTD Q2
2001
YTD Q2
2002
(Data Per U.S. Bancorp Piper Jaffray)
Key M&A Valuation Statistics
Note: Multiples have been changed to median values.
2.5x
2.0x
1.5x
1.0x
0.5x
0.0x
1.8x
1.4x
Technology Transactions
2.2x
1.6x
1.2x
1.9x
1.9x
100%
80%
60%
40%
20%
0%
4.0x
3.0x
2.0x
1.0x
0.0x
1.7x
1.3x
Communications Transactions
2.6x
2.3x
1.3x
0.7x
1.2x
100%
80%
60%
40%
20%
0%
Q1 01 Q2 01 Q3 01 Q4 01 Q1 02 Q2 02 Q3 02 Q1 01 Q2 01 Q3 01 Q4 01 Q1 02 Q2 02 Q3 02
100%
80%
60%
40%
20%
0%
71%
Venture Backed Tech/Comm M&A
70%
54%
52%
46%
22%
35%
100
75
50
25
0
Q1 01 Q2 01 Q3 01 Q4 01 Q1 02 Q2 02 Q3 02
(Data Per U.S. Bancorp Piper Jaffray)
Equity Capital Markets Activity: There were 16 transactions completed in the equity capital markets last week raising a combined
$4.3 billion. Deal activity consisted of 2 IPOs, 10 follow-on offerings, and 4 convertible transactions. The IPOs both traded flat for the week. Follow-on activity consisted of 7 shelf takedowns and 3 marketed transactions. On average, marketed transactions lost 9% in registration while shelf takedowns traded down 6% from shelf amendment filing. In the aftermarket, follow-on offerings overall traded up 3% on their first day and finished the week up 4% from offer price.
Russell 2000
Fundamental Market Overview : Brian Belski, U.S. Bancorp Piper Jaffray's Fundamental Market Strategist, made the following comments on the broader market: While the current five-week stock market recovery has provided the first positive light for equities in several months, we remain concerned about both its longevity and fundamental validity. Longevity = In our opinion, seasonality is the most positive fuel the rally has in its corner right now. However, with the Q4 and FY02 pre-announcement period unfolding in early
December, and geopolitical plots thickening, we believe the rally is likely to lose steam sooner rather than later. Fundamental Validity =
While the market’s traditional discounting mechanism is well documented, discounting techniques and strategies have failed over the past two years in aggregate. Yes, they have worked out from deeply discounted price conditions. However, growth has been unable to materialize, leaving investors with higher multiples and limited visibility. The $64,000 question remains the same: “Where and when does growth materialize?”
120
110
100
90
80
70
60
50
40
30
NASDAQ
DJIA
S&P 500
Russell 2000
Philadelphia Semiconductor Index
S&P Software Index
S&P Comm Equipment Index
Close as of Weekly YTD LTM
11/15/02 % Change % Change % Change
1,411
8,579
910
386
320
416
126
3.8
0.5
1.7
1.8
6.6
4.2
11.0
(27.6)
(14.4)
(20.8)
(21.0)
(38.8)
(21.5)
(39.1)
(25.8)
(13.1)
(20.3)
(14.1)
(39.9)
(20.6)
(46.2)
12/31/011/23/02 2/13/02 3/07/02 3/28/02 4/19/02 5/10/02 6/03/02 6/24/02 7/16/02 8/06/02 8/27/02 9/18/0210/09/0210/30/02
NASDAQ
Russell 2000
S&P Comm Equipment Index
DJIA
Philadelphia Semiconductor Index
S&P 500
S&P Software Index

U.S. Bancorp Piper Jaffray
Technology/Communications M&A Weekly
November 18, 2002
Technology/Communications Mergers & Acquisitions
David Jacquin - Managing Director, Group Head, 415-277-1505, djacquin@pjc.com
Hugh Hoffman - Managing Director, 612-303-6319, hhoffman@pjc.com
Jason Hutchinson - Managing Director, 415-277-1510, jhutchinson@pjc.com
Steve Rickman - Managing Director, 612-303-6258, srickman@pjc.com
Eric Nicholson - Principal, 612-303-6378, enicholson@pjc.com
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