B. Riley Software Update: 2011 Year End Review & Outlook

Bradley T. Nii
Managing Director
+1 310 689 2219
bnii@brileyco.com

Adam J. Little
Senior Vice President
+1 949 250 5506
alittle@brileyco.com

SOFTWARE Industry Update
2011 Year End Review & Outlook

public companies in 2011, a large number of which were
fixed income offerings. Highlighting the public activity
In many respects, 2011 was a year of two halves for the were major bond offerings by the industries largest—and
software sector. The first half of the year was most cash rich—software players, including Google,
characterized by robust (yet anything but consistent) Microsoft and Oracle. Equally as dynamic, if not more so,
stock market gains that ticked over 10% for the year by was financing activity for private software companies,
the April/May timeframe, access to cheap capital in the with over 340 transactions. Aided in no small part by
form of exceedingly low interest rates, healthy M&A what amounts to over $400 billion in dry powder, VC and
activity and dotcom-era valuations. Driven further by private equity firms invested over $2.2 billion in
strong IT budgets for would be purchasers of software privately-held software companies.
products, many in the software world held a view early in
the year that the recession that hampered so many Merger and acquisition activity was relatively flat in 2011
companies in 2008 and 2009 was now clearly behind us as compared to 2010 in terms of number of acquisitions.
and that 3%+ GDP growth would soon again be de However, reported deal volume increased significantly
rigueur. However, with persistently high U.S. over the period due to a number of large software
unemployment rates, an increasingly uncertain economic acquisitions by HP, Dell, IBM and SAP. Consolidation also
picture in Europe and a string of downward revisions on played out during the year as certain sectors, such as
U.S. GDP growth, global markets took yet another large human capital management, saw heightened activity as
dip late summer. As a result, the second half of 2011 saw vendors sought to fill holes in their existing product
a decline in fundraising activity, a slew of poor suites. Strategic acquirers continue to be very disciplined
performing IPOs and declining transaction valuations. buyers. Those acquisitions that were deemed highly
strategic garnered premium valuations, which served to
Despite overall U.S. GDP growth in 2011 of less than enhance exit multiples in the first part of the year.
2%—the mark of 2.8% (annualized) in the fourth quarter
does give us hope—a significant number of companies in In this quarterly Software Report, we touch on
our software universe grew much faster than the overall performance of the software sector in 2011 with a
economy, with only a handful posting negative revenue particular emphasis on investor sentiment and
growth from December 2010 to December 2011. Positive transaction activity in 2011. We hope that you find the
momentum within the business models and accessible information on the following pages helpful as you
capital markets cultivated an environment of strong navigate the market in 2012.
transaction activity, especially during the first half of
2011. There were approximately 160 financings for


PUBLIC EQUITIES. The Major Market Indices Compared to Software and SaaS Indices
January 3, 2011 – December 30, 2011
software sector (with
both the S&P 600
20.0%
Software Index, as well B. Riley SaaS Index NASDAQ S&P 500 S&P 600 Software
as B. Riley’s SaaS index)
15.0%
generally followed the
ebbs and flows of the
broader market, 10.0%

especially during the
middle and late parts of 5.0%
the year as investors
continued to seek out 0.0%
fast growing companies
with strong balance -5.0%
sheets. With M&A and
capital raising activity -10.0%
off to a flurry in the first
half of the 2011 and -15.0%
overall positive investor
Source: CapitalIQ
sentiment, B. Riley’s -20.0%
SaaS index passed the Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11
15% mark near the
beginning of July. However, broad stock market declines through the end of summer—brought on by slower than
expected U.S. GDP growth and Standard & Poor’s downgrade of its credit rating of the U.S. federal government on
August 5th—reduced any gains and resulted in nearly all index trading down over 10% by late September. However,
after fears of credit defaults in several European countries subsided, stock markets rebounded, with the software
indices finishing the year with modest gains.

After some profit taking and selling momentum in late November and early December, software valuations for the
public companies in our universe finished the 2011 on a strong note. As of December 31st, our universe posted a
median Enterprise
Value to Revenue Median Software LTM EV/Revenue Multiples by Sector
multiple of 2.7x, up
from 2.5x at the end As of 12/31/11 As of 2/15/12
7.0x
of Q3. Among the
5.8x
various sectors we 6.0x 5.5x
5.3x
track, the Human 5.0x
5.0x
Capital Management
(“HCM”) and Security 4.0x 3.5x 3.4x
3.1x
3.4x
segments continued 3.0x 3.1x
2.8x
3.2x
2.9x 2.8x 2.8x 3.0x
2.7x 2.5x 2.7x
to lead the way 3.0x 2.6x
2.4x
2.6x 2.6x
2.3x 2.3x
thanks to strong year 2.0x 1.8x
over year revenue 1.0x
0.8x 0.9x
growth and M&A 1.0x 0.7x

activity, especially 0.0x
within HCM, which
ERP
CRM

Communications/Messaging
Application Performance Mgmt

Content Mgmt

Data Mgmt Infrastructure

Entertainment

Healthcare

eCommerce

Human Capital Mgmt

Security

All Software
Financial

Engineering/Design Automation

Education & eLearning

also saw a high
profile IPO during the
year (Cornerstone
OnDemand (CSOD).

In addition, much has
been made of the rise
and acceptance of Source: CapitalIQ
software-as-a-service


or SaaS offerings and the subscription revenue models they typically employ. A large number of companies with
traditional perpetual license models have begun to make the transition from to SaaS models, and in many cases have
already completed this transition. Examples include Callidus Software (CALD), Saba Software (SABA), Concur
Technologies (CNQR) and Ultimate Software (ULTI). Concur and Ultimate, both of which are now pure SaaS companies
trade at over 7x and over 6x, respectively. For at least the near term, we believe pure SaaS companies will continue
to trade above their peers who rely on a perpetual license revenue model.

GROWTH EFFECT. In addition to valuation trends among the various software sectors, valuation by company size also
demonstrated an interesting pattern in 2011. Beginning late in 2010, the public markets are clearly rewarding
companies with strong historical and forecasted growth. We believe this is largely due to the overall tepid economic
growth/recovery coming out of the recession of 2008/2009. Large public companies (those with revenues over $1
billion) have historically garnered the highest valuations from equity investors based on their market presence,
diversification, scale and liquidity. These companies grew somewhat slower in Q4 (vs Q2), but still posted double digit
quarter over quarter growth and remain highly profitable.

However, investors are currently rewarding high growth companies with premium valuations, reducing the implied
discount for size. Companies that are demonstrating 20% year-over-year bookings growth are garnering
premium multiples. A number of emerging public companies with revenues between $100MM and $500MM are
growing very quickly, increasing profit margins and, accordingly, commanding higher valuations. These companies
include LogMeIn (LOGM) (Security), SuccessFactors (SFSF) (HCM), which is being acquired by SAP for 12x revenue,
RealPage (ERP) and QLIK Technologies (QLIK) (Data Management). Companies within this revenue range as a whole
posted a higher EV/Revenue multiple than their larger peers at quarter end (based on companies that reported
calendar Q4 results).

The Growth Effect – Public Market Valuations by Revenue Size
Valuations Taken as of Quarter End
(data based only on those companies that have reported calendar Q4 results)

EV/Revenue EV/EBITDA 4Q11/4Q10
Q4 EBITDA 2 Yr Forward Revenue/
Revenue
Margin Growth Rate Growth
4Q10 1Q11 2Q11 3Q11 4Q11 4Q10 1Q11 2Q11 3Q11 4Q11 Growth

Revenue >$1B 3.4x 3.9x 3.7x 2.5x 2.7x 11.9x 11.9x 12.0x 10.4x 11.6x 12.1% 27.8% 9.6% 0.27x

Revenue $500MM - $999MM 2.9x 2.9x 2.8x 2.1x 2.3x 14.9x 14.6x 15.1x 10.3x 11.6x 14.1% 29.1% 10.2% 0.64x

Revenue $100MM - $499MM 3.4x 3.8x 3.4x 2.3x 2.8x 19.0x 22.5x 23.6x 15.6x 18.8x 19.9% 18.7% 16.5% 0.22x

Revenue $15-$100MM 1.6x 1.8x 1.8x 1.2x 1.7x 13.9x 16.0x 16.0x 11.9x 16.5x 4.3% 5.6% 11.2% 0.23x

Source: CapitalIQ
The table to the right Top 5 Fastest Growing Software Companies in 2011 (LTM 12/31/11)
shows the five fastest and
Company Sector 2010 2011 % Change EV/ Revenue
slowest growing companies
ValueClick, Inc. Advertising $506.3 $560.2 10.6% 2.9x
in our software universe as Liquidity Services, Inc. Online Retail $327.4 $358.0 9.3% 3.5x
of the trailing twelve eBay Inc. Online Retail $10,767.0 $11,651.7 8.2% 3.3x
months (“TTM”) ended Aspen Technology, Inc. ERP $206.3 $223.0 8.1% 8.5x
Keynote Systems Inc. Application Performance Mgmt $103.0 $111.3 8.0% 2.7x
December 31, 2011. Three
out of the four companies Top 5 Slowest Growing Software Companies in 2011 (LTM 12/31/11)
in the five fasted list fell in
Company Sector 2010 2011 % Change EV/ Revenue
the $100MM-$500MM Limelight Networks, Inc. Content Management $197.4 $171.3 -13.2% 1.6x
category, with one Take-Two Interactive Software Inc. Entertainment $957.9 $860.0 -10.2% 1.5x
(ValueClick) just exceeding Yahoo! Inc. Search Engine $5,185.2 $4,984.2 -3.9% 3.4x
it. The top three players RealD Inc. Systems Inc.
Openwave
Entertainment
Communications
$263.8
$166.4
$255.1
$162.4
-3.3%
-2.4%
2.7x
0.8x
have a heavy, if not sole,
emphasis on Internet business. These companies all had EV/Revenue multiples above 2.7x. The five slowest growing
companies presented a mixed bag of Internet and application software companies. Some of these are digesting rapid
growth in prior periods (RealD), while others are facing strong headwinds (Yahoo). Not too surprisingly, these


companies (other than Yahoo because of its brand and persistent takeover gossip) all trade at discounts to their peers
on an EV/Revenue basis.

Public companies, including some of the Q4 Earnings Scorecard
largest players, had a harder time GAAP EPS: Actual vs. Analyst Estimate ($MMs)
meeting profitability estimates from their (data based only on those companies that have reported calendar Q4 results)
analyst community in Q4 than in GAAP EPS
previous quarters. However, most Company Revenue Actual Estimate Diff.
misses were on the bottom line – Microsoft Corporation $72,052.0 $0.78 $0.75 $0.03
providing further proof of the Google Inc. $37,905.0 $8.22 $9.14 ($0.92)
increased focus on revenue and market Oracle Corporation $36,704.0 $0.43 $0.45 ($0.02)
eBay Inc. $11,651.7 $1.51 $1.51 $0.00
share growth. Even Google, citing a Symantec Corporation $6,722.0 $0.32 $0.27 $0.05
variety of factors, posted Q4 profit Cadence Design Systems Inc. $1,149.8 $0.04 $0.09 ($0.05)
numbers that were below analyst Monster Worldwide, Inc. $1,040.1 $0.09 $0.12 ($0.03)
expectations. Google did, however, Rackspace Hosting, Inc. $1,025.1 $0.18 $0.15 $0.03
increase revenue 25% from the year-ago Compuware Corporation $993.3 $0.10 $0.12 ($0.02)
Informatica Corporation $783.8 $0.38 $0.34 $0.04
quarter. Oracle also missed earnings in MicroStrategy Inc. $562.2 $0.81 $0.94 ($0.13)
Q4 and demonstrated an unexpected QuinStreet, Inc. $393.6 $0.09 $0.09 $0.00
slowdown in sales growth (2% growth). Concur Technologies, Inc. $369.6 ($0.02) $0.00 ($0.02)
Microsoft, still the world’s largest NetSuite Inc. $236.3 ($0.11) ($0.11) $0.00
software company, posted 5% revenue Aspen Technology, Inc. $223.0 $0.04 ($0.09) $0.13
Saba Software, Inc. $121.3 ($0.16) ($0.17) $0.01
growth and easily beat Wall Street EPS Keynote Systems Inc. $111.3 $0.22 $0.10 $0.12
estimates. PROS Holdings, Inc. $96.6 $0.08 $0.05 $0.03
Callidus Software Inc. $83.8 ($0.11) ($0.14) $0.03
Pervasive Software Inc. $49.4 $0.03 $0.02 $0.01

U.S. SOFTWARE IPOS AND FINANCINGS. The IPO market finally began to show signs of life in 2011, lead early on by a slew of
offerings from Chinese software companies floating shares on the Nasdaq and New York Stock Exchanges. 2011
finished the year with two December IPOs, including the much anticipated initial offering from social gaming maker,
Zynga.


In all, the U.S. markets have not been particularly kind to new issuances during the year from any continent, as
represented by the return six months after the initial offering. So far, only Qihoo 360, an Internet and mobile security
player, and LinkedIn, the high profile social network for working professionals, have performed above par. LinkedIn
traded over $90.00 at the time of this report (early February). Of the more recent IPOs, Zillow, Imperva, Tangoe and
Jive have posted early gains. Zynga was initially flat and has moved upward in February. Angie’s List also rebounded
after an initial post-IPO dip that had the stock trading below its initial offering price. Carbonite, who provides a solution
for backing up data online, is currently trading just below its initial offering price and has slid down after a few short
days of hot trading following its
going out date. Tudou, a Chinese U.S. Software Public Company Financing Activity
online video company, has not Companies with Market Capitalization $25m-$500m
performed well thus far, currently
trading around $14.00 and far off
Debt Raised Equity Raised Equity Deals Debt Deals
its initial price of $29.00. Our 12 $160

report does not track results for $140
10
such other software related IPOs in $120
different verticals, such as Groupon 8
$100
(GRPN) and Pandora Media (P).
6 $80

$60
4
The chart on the right, which
$40
shows total equity and debt 2
financings for public U.S. software $20

companies with market - $-
capitalizations $25MM-$500MM, 1Q2010 2Q2010 3Q2010 4Q2010 1Q2011 2Q2011 3Q2011 4Q2011
shows the
heighted activity Amount Raised
in the first half of Closed Date Company ($MMs) Transaction Type Transaction Primary Features

2011, particularly 12/12/2011 Oracle Corporation (NasdaqGS:ORCL) $3,250.0 Public Offering Fixed-Income Offering

as companies 05/16/2011 Google Inc. (NasdaqGS:GOOG) $999.8 Public Offering Fixed-Income Offering

raised large 05/16/2011 Google Inc. (NasdaqGS:GOOG) $994.5 Public Offering Fixed-Income Offering
02/03/2011 Microsoft Corporation (NasdaqGS:MSFT) $991.5 Public Offering Fixed-Income Offering
amounts of capital
05/16/2011 Google Inc. (NasdaqGS:GOOG) $991.0 Public Offering Fixed-Income Offering
from debt 07/06/2011 Equinix, Inc. (NasdaqGS:EQIX) $750.0 Public Offering Fixed-Income Offering
issuances in the 02/03/2011 Microsoft Corporation (NasdaqGS:MSFT) $748.2 Public Offering Fixed-Income Offering
second quarter. 11/16/2011 LinkedIn Corporation (NYSE:LNKD) $621.3 Public Offering Follow-on Equity Offering
The table below 10/18/2011 Nuance Communications, Inc. (NasdaqGS:NUAN) $600.0 Public Offering Fixed-Income Offering
shows the 25 02/03/2011 Microsoft Corporation (NasdaqGS:MSFT) $498.7 Public Offering Fixed-Income Offering
largest financings 02/18/2011 Zynga, Inc. (NasdaqGS:ZNGA) $490.0 Private Placement Growth Capital/Private Equity
by public 03/14/2011 WebMD Health Corp. (NasdaqGS:WBMD) $395.0 Public Offering Fixed-Income Offering
companies in 01/11/2011 WebMD Health Corp. (NasdaqGS:WBMD) $388.0 Public Offering Fixed-Income Offering

2011. 20 of the 25 09/26/2011 EarthLink Inc. (NasdaqGS:ELNK) $300.0 Public Offering Fixed-Income Offering

largest deals were 05/17/2011 EarthLink Inc. (NasdaqGS:ELNK) $289.7 Public Offering Fixed-Income Offering

debt financings. 04/04/2011 Mentor Graphics Corp. (NasdaqGS:MENT) $253.0 Public Offering Fixed-Income Offering

Each of these 11/11/2011 Take-Two Interactive Software Inc. (NasdaqGS:TTWO) $220.0 Public Offering Fixed-Income Offering
12/06/2011 Bankrate, Inc. (NYSE:RATE) $218.8 Public Offering Follow-on Equity Offering
companies took
07/28/2011 Bankrate, Inc. (NYSE:RATE) $195.0 Public Offering Fixed-Income Offering
advantage of low 02/03/2011 SS&C Technologies Holdings, Inc. (NasdaqGS:SSNC) $193.6 Public Offering Follow-on Equity Offering
interest rates to 04/06/2011 IntraLinks Holdings, Inc. (NYSE:IL) $191.3 Public Offering Follow-on Equity Offering
collectively sell in 05/10/2011 Ancestry.com Inc. (NasdaqGS:ACOM) $182.7 Public Offering Follow-on Equity Offering
excess of $10 03/30/2011 TiVo Inc. (NasdaqGS:TIVO) $172.5 Public Offering Fixed-Income Offering
billion in bonds or 07/22/2011 SS&C Technologies Holdings, Inc. (NasdaqGS:SSNC) $134.4 Public Offering Follow-on Equity Offering
convertible notes. 05/10/2011 Dice Holdings, Inc. (NYSE:DHX) $127.0 Public Offering Follow-on Equity Offering


MERGER AND ACQUISITION ACTIVITY. Overall, total M&A activity was relatively flat in 2011 (vs 2010) based on number of
transactions. However, there were a number of large acquisitions during the year. Throughout the year we saw a
number of companies making bets on which emerging technologies, solutions and business models will ultimately
prevail, particularly as it relates to Cloud-based offerings and subscription (SaaS) revenue models. Certain sectors saw
heightened activity, such as within the Human Capital Management space, as vendors jockeyed for position and looked
to round out their product suites. The majority of targets were smaller players with point solutions and/or focused on
certain HCM facets (e.g., Plateau Systems, a learning management provider, acquired by SuccessFactors). However, a
number of larger suite players were also in play. SuccessFactors itself is set to be sold to SAP and Oracle recently
announced its intent to purchase Taleo (TLEO) for $1.9 billion and 5.7x TTM revenue.

In Q4, activity increased over Q3 in terms of reported dollar value, but declined based on total number of transactions.
There were 2 transactions over $1 billion in Q4 (the lowest total since Q1), including the take private of Blackboard by
Providence Equity Partners and HP’s mammoth takeover of U.K.-based Autonomy Corp for $11 billion. After adjusting
for the Autonomy deal, transaction dollar volume was significantly lower in Q4 than the previous three quarters.

U.S. Software M&A Activity and Transaction Value
All Transactions

$20,000 $18,609 Total $ Value Total Transactions 450
$18,191
$18,000 400
$16,189
$16,000 $14,551
$14,234 $13,994 350
$14,000 $12,357 300
$12,000 $11,037
$10,442 250
$9,844
$10,000
$7,821 200
$8,000 $6,353
150
$6,000 $4,524
$3,480 100
$4,000 $2,709
$2,000 $1,281 50
$0 0
1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11
Source: CapitalIQ; based on U.S. targets and/or buyers

Perhaps most pressing for
software companies with an
eye towards an M&A event is
the data suggested by exit
multiples paid over the last
three quarters. Since posting
a recent high of 4.28x revenue
in Q1, the median EV/Revenue
multiple has ticked down to
2.04x in Q4. The froth so fresh
as a couple of quarters ago, as
well as recent public company
exit multiples (SuccessFactors
–12x revenue, RightNow-7x
revenue, LoopNet-8x revenue)
is no doubt causing
mismatches between buyer
and seller expectations. In Q4,
there were four transactions with EV/Revenue valuations north of 4x, including two of the three largest deals). We also
point out that it appears that 3x is quickly becoming the benchmark that all moderately valued private software


companies seem to believe they should be valued (rightly or wrongly). However, there were eleven transactions with
multiples below 3x during the quarter. We believe it will take several more quarters (at least) of strong M&A activity
and visible pricing to understand how this potential buyer/seller mismatch will play out.

It is no surprise that most transactions are below $100MM or undisclosed. However, there have recently been a larger
number of big transactions (over $500MM) completed, mostly by large publics and private equity-backed privates. For
example, there have been thirteen deals over $1 billion in the last four quarters (including nine in Q2 and Q3) vs. 11
total in the previous ten quarters combined.

U.S. Software M&A Transactions
Deal Size Breakdown

1Q 2011 2Q 2011 3Q 2011 4Q 2011
> $1B $500MM - > $1B $500MM - > $1B $500MM - > $1B $500MM -
6% $999MM 3% $999MM 5% $999MM 3% $999MM
4% 4% 2% 4%

$100MM - $100MM -
$100MM - $499MM $499MM
$499MM 9% 12%
$100MM - 16%
$499MM
25%
< $100MM
65%
< $100MM < $100MM
77% < $100MM
84% 81%

Software executives are
demonstrating increased M&A Activity by Buyer Revenue Size
appetite for M&A, Disclosed Software Acquisitions Since 1/1/2010
especially among the Completed Deals $ Deal Value
megavendors. These 200 $50,000
players have grown
180 $40,000
organically, while using

$ Volume ($MMs)
150
$39,667
their large cash balances to $30,000
funds acquisitions to 100
$20,000
augment growth. As a 85
50
result, the largest 44 $3,985 49
$10,000
$2,457 $562
software companies - $0
continue to be the most Revenue over $1b Revenue $500m-$999m Revenue $100m-$499m Revenue $15m-$99m
active acquirers. The
majority of smaller public
companies have relied in Top 10 Active Software Buyers
Disclosed Completed Acquisitions of Software Companies in 2011
large part on a number of
smaller, “tuck in”
acquisitions, many of which Google 16

were with existing partners Autodesk 10
or vendors and views as
Groupon
less risky transactions. 9

Instead, the smaller players Facebook 8
are choosing to spend their Wmware 8
cash very cautiously while
resisting the temptation to CrowdGather 7

take on a more Zynga 7
transformative acquisition
Allen System Group 6
with higher integration risk
that could ultimately derail eBay 6
the existing business. Oracle 6


Private equity activity also Private Equity Buyers of Software Companies
remained strong in 2011, U.S. Targets and/or Buyers
particularly through the
first half of the year. The
Carlyle Group and Apax
Partners both made two
large acquisitions. Apax
combined its purchase of
Activant with its
acquisition of publicly-
held Epicor Software for a
total purchase of over $1.8
billion. For the most part, financial buyers employed much more discretion in terms of valuation, with only Carlyle’s
acquisition of Syniverse, also a public company, exceeding 4x revenue. However, on an EBITDA basis, which is surely
the focus of the transaction, Carlyle paid a modest 11.5x. Syniverse was/is very profitable (EBITDA margins
approaching 40%). We expect private equity activity to remain robust in 2012, if for no other reason than the very
large amounts of dry powder (over $400 billion) to invest. Funds will continue to look for opportunities that can
demonstrate consistent profitability and avenues for growth, both organically and via acquisitions. Furthermore, we
expect private equity-backed software companies to be the largest group of acquirers in 2012.

There were over twenty acquisitions of U.S. exchange listed software companies were announced in 2011, along with
several other completed deals that were announced in 2010. Of those announced in 2011, ten had transactions values
exceeding $1 billion, including one private equity-backed deal (Golden Gate/Infor’s acquisition of Lawson Software)
and two take privates (Providence/Blackboard and Apax/Epicor). A number of plays were made to take in leading SaaS
based companies, including Rightnow (Oracle), Blackboard, SuccessFactors (SAP) and LoopNet (CoStar).

Acquisitions of U.S. Exchange Listed Software Companies
Transactions Announced in 2011
($MMs)

Announced Transaction LTM LTM EV/ EV/
Date Target Buyer(s) Status Value ($MMs) Revenue EBITDA Revenue EBITDA
12/02/2011 SuccessFactors, Inc. (NYSE:SFSF) SAP America, Inc. Announced $3,764.4 $291.8 ($27.2) 12.05x -
04/26/2011 Savvis, Inc. CenturyLink, Inc. (NYSE:CTL) Closed $3,084.3 $973.4 $229.2 3.04x 12.93x
03/11/2011 Lawson Software, Inc. Golden Gate Capital; Infor Global Solutions, Inc. Closed $2,081.5 $755.2 $134.4 2.36x 13.24x
02/22/2011 Mentor Graphics Corp. (NasdaqGS:MENT) Carl Icahn Announced $1,815.1 $914.8 $117.7 2.14x 16.47x
06/30/2011 Blackboard Inc. Providence Equity Partners LLC Closed $1,851.8 $481.4 $79.1 3.67x 22.33x
03/27/2011 GSI Commerce, Inc. eBay Inc. (NasdaqGS:EBAY) Closed $2,381.4 $1,358.0 $103.9 1.58x 20.52x
10/23/2011 Rightnow Technologies Inc. Oracle Corporation (NasdaqGS:ORCL) Closed $1,762.9 $216.2 $23.9 7.04x 63.76x
01/27/2011 Terremark Worldwide, Inc. Verizon Communications Inc. (NYSE:VZ) Closed $1,910.6 $340.7 $82.1 5.41x 22.43x
07/11/2011 Radiant Systems, Inc. NCR Corp. (NYSE:NCR) Closed $1,241.7 $367.2 $55.1 3.10x 20.67x
04/04/2011 Epicor Software Corporation Apax Partners Worldwide LLP Closed $1,041.9 $369.6 $103.4 2.10x 17.51x
04/27/2011 LoopNet, Inc. (NasdaqGS:LOOP) CoStar Group Inc. (NasdaqGS:CSGP) Announced $751.5 $79.9 $21.6 8.19x 30.31x
07/26/2011 S1 Corporation (NasdaqGS:SONE) ACI Worldwide, Inc. (NasdaqGS:ACIW) Announced $510.4 $227.3 $12.3 1.80x 29.76x
11/30/2011 Magma Design Automation Inc. (NasdaqGM:LAVA) Synopsys Inc. (NasdaqGS:SNPS) Announced $549.4 $146.4 $17.5 3.41x 28.40x
08/15/2011 Renaissance Learning Inc. Permira Advisers Ltd. Closed $485.1 $136.1 $39.6 3.50x 12.02x
06/15/2011 MediaMind Technologies Inc. Digital Generation, Inc. (NasdaqGS:DGIT) Closed $523.9 $83.7 $14.8 5.05x 28.50x
12/07/2011 DemandTec, Inc. (NasdaqGS:DMAN) International Business Machines Corp. (NYSE:IBM) Announced $486.4 $146.4 $17.5 4.79x -
09/14/2011 Fundtech Ltd. BServ, Inc. Closed $382.4 $151.4 $19.9 2.04x 15.50x
06/10/2011 Gerber Scientific, Inc. Vector Capital; CITIC Capital Partners Closed $297.8 $462.5 $16.1 0.62x 17.84x
02/01/2011 NaviSite, Inc. Time Warner Cable Inc. (NYSE:TWC) Closed $331.8 $131.0 $24.3 2.49x 12.29x
12/21/2011 InsWeb Corp Bankrate, Inc. (NYSE:RATE) Closed $57.2 $52.2 $2.9 1.07x 19.34x
11/10/2011 Bitstream Inc. (NasdaqCM:BITS) Monotype Imaging Holdings Inc. (NasdaqGS:TYPE) Announced $50.0 $27.5 ($3.7) - -
05/16/2011 5to1 Holding Corp. Yahoo! Inc. (NasdaqGS:YHOO) Closed $28.3 $0.8 ($7.2) 33.76x -
08/01/2011 Vertro, Inc. (NasdaqCM:VTRO) Inuvo, Inc. (AMEX:INUV) Announced $19.4 $35.2 $0.8 0.48x -
09/23/2011 Superclick, Inc. AT&T Corp. Closed $15.0 $11.3 $2.0 1.09x 6.03x


Top 50 Largest U.S. Target and/or Buyer Transactions of 2011
Transactions Closed in 2011

Transaction EV/
Closed Date Target Buyer Value ($MMs) Revenue EV/ EBITDA
10/13/2011 Autonomy Corp. plc Hewlett-Packard Company (NYSE:HPQ) $11,036.8 11.06x 25.17x
02/28/2011 McAfee, Inc. Intel Corporation (NasdaqGS:INTC) $7,696.1 3.45x 16.06x
07/15/2011 Savvis, Inc. CenturyLink, Inc. (NYSE:CTL) $3,084.3 3.04x 12.93x
01/13/2011 Syniverse Holdings, Inc. The Carlyle Group LP $2,721.5 4.15x 11.49x
06/17/2011 GSI Commerce, Inc. eBay Inc. (NasdaqGS:EBAY) $2,381.4 1.58x 20.52x
04/27/2011 Novell, Inc. Attachmate Corporation $2,144.6 1.25x 8.66x
07/05/2011 Lawson Software, Inc. Golden Gate Capital; Infor Global Solutions, Inc. $2,081.5 2.36x 13.24x
04/07/2011 Terremark Worldwide, Inc. Verizon Communications Inc. (NYSE:VZ) $1,910.6 5.41x 22.43x
10/04/2011 Blackboard Inc. Providence Equity Partners LLC $1,851.8 3.67x 22.33x
08/12/2011 PopCap Games, Inc. Electronic Arts Inc. (NasdaqGS:EA) $1,301.3 - -
08/22/2011 Radiant Systems, Inc. NCR Corp. (NYSE:NCR) $1,241.7 3.10x 20.67x
05/13/2011 Epicor Software Corporation Apax Partners Worldwide LLP $1,041.9 2.10x 17.51x
01/05/2011 Art Technology Group, Inc. Oracle Corporation (NasdaqGS:ORCL) $1,032.7 4.54x 32.10x
11/07/2011 Travelex Global Business Payments, Inc. Western Union Co. (NYSE:WU) $975.3 4.28x 13.59x
05/16/2011 Activant Solutions Apax Partners Worldwide LLP $890.0 - -
01/04/2011 Property Information business of Macdonald Dettwiler including 50% stake in Wertweiser Gmbh
TPG Capital $849.0 - -
10/27/2011 Network Solutions, LLC Web.com Group, Inc. (NasdaqGS:WWWW) $793.7 - 8.82x
04/12/2011 ITA Software, Inc. Google Inc. (NasdaqGS:GOOG) $700.0 - -
02/11/2011 Sonic Solutions Rovi Corporation (NasdaqGS:ROVI) $698.1 6.22x -
01/21/2011 Aprimo, Incorporated Teradata Corporation (NYSE:TDC) $525.0 - -
07/22/2011 MediaMind Technologies Inc. Digital Generation, Inc. (NasdaqGS:DGIT) $523.9 5.05x 28.50x
06/14/2011 Explore Information Services, L.L.C. Audatex North America, Inc. $520.0 6.61x 16.67x
08/10/2011 Seismic Micro-Technology, Inc. IHS Inc. (NYSE:IHS) $502.0 8.42x 20.16x
10/28/2011 Triple Point Technology, Inc. Welsh, Carson, Anderson & Stowe $500.0 - -
10/19/2011 Renaissance Learning Inc. Permira Advisers Ltd. $485.1 3.50x 12.02x
03/31/2011 EskoArtwork NV Danaher Corp. (NYSE:DHR) $469.8 1.90x -
02/11/2011 BI Incorporated GEO Care, Inc. $415.0 - -
06/24/2011 Clearwell Systems, Inc. Symantec Corporation (NasdaqGS:SYMC) $410.0 - -
02/03/2011 Wireless Generation, Inc. News Corp. (NasdaqGS:NWSA) $390.0 - -
11/30/2011 Fundtech Ltd. BServ, Inc. $382.4 2.04x 15.50x
10/21/2011 Algorithmics, Inc. OpenPages, Inc. $380.2 2.32x 34.88x
06/02/2011 Iron Mountain Inc., Key Assets of Digital Division Autonomy Corp. plc $380.0 - -
04/21/2011 NaviSite, Inc. Time Warner Cable Inc. (NYSE:TWC) $331.8 2.49x 12.29x
08/16/2011 Interactive TKO, Inc. CA Technologies (NasdaqGS:CA) $330.0 8.46x -
03/04/2011 HuffingtonPost.com LLC AOL, Inc. (NYSE:AOL) $315.0 - -
05/31/2011 MKS Inc. Parametric Technology Corporation (NasdaqGS:PMTC) $304.5 4.14x 20.99x
08/22/2011 Gerber Scientific, Inc. Vector Capital; CITIC Capital Partners $297.8 0.62x 17.84x
01/14/2011 webloyalty.com, Inc. Affinion Group, Inc. $296.3 1.38x 6.45x
06/28/2011 Plateau Systems, LTD. SuccessFactors, Inc. (NYSE:SFSF) $290.0 - -
06/03/2011 Cryptography Research, Inc. Rambus Inc. (NasdaqGS:RMBS) $288.3 11.96x 37.47x
04/05/2011 Aster Data Systems, Inc. Teradata Corporation (NYSE:TDC) $288.0 - -
07/13/2011 Global 360, Inc. Open Text Corp. (NasdaqGS:OTEX) $258.7 2.87x -
09/08/2011 Meetic S.A. (ENXTPA:MEET) Match.com, L.L.C. $253.4 1.65x 7.43x
04/12/2011 Mortgagebot LLC Davis + Henderson Corporation (TSX:DH) $231.8 6.15x 11.48x
02/18/2011 Riot Games, Inc. Tencent Holdings Ltd. (SEHK:700) $231.5 - -
07/01/2011 dynaTrace software GmbH Compuware Corporation (NasdaqGS:CPWR) $231.4 8.90x -
05/31/2011 Schoolnet, Inc. Pearson plc (LSE:PSON) $230.0 - -
04/30/2011 CambridgeSoft Corporation PerkinElmer Inc. (NYSE:PKI) $227.4 - -
03/01/2011 PlaySpan, Inc. CyberSource Corporation $220.0 - -
01/03/2011 Heroku, Inc. Salesforce.com (NYSE:CRM) $216.7 - -


Notable Acquisitions of U.S. SaaS Companies
Transactions Announced in 2011


In the mid-market, the core focus of B. Riley’s transaction activity, activity declined slightly in Q4 and lagged the third
and fourth quarter of 2010 entirely—both in terms of total transactions and disclosed dollar volume. After adjusting
for the Autonomy deal in Q4, we believe this trend is similar to what we are seeing in the broader software market. We
believe the decline is partially due to timing (i.e., transactions slipping into 2012) and partially due to buyers’ desire to
feel positive about their internal plans and growth initiatives before pulling the trigger and the aforementioned
mismatch between buyer and seller expectations, some of which could also be contributing to a few deals slipping into
Q1 2012. Lackluster economic conditions tend to have a more profound impact on transaction activity in the mid-
market as smaller companies often feel much larger vibrations than their larger peers.

U.S. Software M&A Activity and Transaction Value
Transaction Value $25 - $500 Million

Total $ Value Total Transactions
$6,000 50
$5,370 $5,473
45
$5,000 $4,733
$4,413 40
$4,316
$3,927 $3,847 35
$4,000
$3,419 $3,446
$3,308 $3,201 $3,222 30
$3,000 $2,708 25

20
$1,907
$2,000
15

$936 $1,018 10
$1,000
5

$0 0
1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11


PRIVATE COMPANY DISCUSSION. 2011 was a strong year for privately-held software companies, as large numbers of
companies raised equity and debt capital from a wide variety of VC and private equity funds throughout the year. In
total, private companies took in over $14 billion in total proceeds in over 1,300 transactions for an average of $10.7
million per transaction. Of these transactions, the majority continue to be VC investments in early and late stage
software companies in a variety of segments. Again, investors looked to invest large sums in proven businesses with
sustained, high growth potential. However, private companies growing at less than 30% per year will have a much
harder time gaining the attention and wallets of private software investors. For the time being at least, the large
number of emerging growth companies—many of which are Internet driven—are commanding the mindshare of
relevant VC and private equity investors.

2011 saw investors pour billions into Internet-based business, including social media companies, online storage and
Internet retail. Facebook led the charge in January by offering $1 billion worth of class A common shares in a
transaction that was marketed only to non-U.S. investors. The largest deal of the year went to The Go Daddy Group,
which provides domain name registration and Web site hosting services in the United States. The Internet company
raised $2.25 billion in a combination of equity and debt from new investors Kohlberg Kravis Roberts & Co., Silver Lake
Partners and Technology Crossover Ventures. Go Daddy raked in sales of roughly $950 million in 2010. Dropbox, the
online storage and file sharing company who was founded in 2007, pulled in $250 million in series B funding from a
group of top VC firms. The young company’s last round was valued at $3.9 billion on a post-money basis. While the IPO
markets did begin to show signs of opening up in late 2011 and early 2012 (Facebook filed its S-1 on February 1st with
the intention to raise $5 billion), we believe that private software companies will continue to access the private capital
markets for equity and debt for the foreseeable future. For now, it appears that going public is not in the cards for
everyone. The bar has been raised for would be public entrants. For example, TrueCar, which provides online new car
pricing information in the United States, in September raised $200 million in a round of debt and equity from a group of
financial and strategic investors. TrueCar management has said that with access to cash seemingly readily available
they have no intentions of accessing the public markets any time soon.

In addition, several buyouts of large public software
Venture Capital vs. Growth Equity Transactions
companies were followed by fixed income offerings to
the public. Each of Epicor (bought by Apax Partners),
450 Venture Capital Private Equity
Lawson (bought by Golden Gate Capital and Infor) and
Syniverse (bought by The Carlyle Group) each 400
commenced public offerings in conjunction with their
# of Transactions

350 71
acquisition, collectively raising nearly $1.5 billion 51 56
300
corporate bonds/notes. The chart below shows total 44 53
250 42
debt and equity fund raising for U.S. software 40
companies in 2010 and 2011. 200 38
315 296 288
267 258
239
150 209
176
100
1Q2010 2Q2010 3Q2010 4Q2010 1Q2011 2Q2011 3Q2011 4Q2011

U.S. Private Company Software Financings (Debt & Equity)

$5,100 $4,713 450
389
$4,600 $3,897 348 344 400
$4,100 316
311 350
# of Transactions
$ Volume ($MMs)

284 $3,332 $3,405
$3,600 300
251
$3,100 214 250
$2,600 $2,283
$1,995 200
$2,100
$1,547 150
$1,600 $1,337
$1,100 100
$600 50
$100 0
1Q2010 2Q2010 3Q2010 4Q2010 1Q2011 2Q2011 3Q2011 4Q2011


Top 25 Largest U.S. Private Software Financings of 2011 (Debt & Equity)
Transactions Closed in 2011
Amout
Closed Raised
Date Company ($MMs) Investors/Sponsor
07/01/2011 The Go Daddy Group, Inc. $2,250.0 Kohlberg Kravis Roberts & Co. (NYSE:KKR); Silver Lake Partners; Technology Crossover Ventures

01/21/2011 Facebook, Inc. $1,000.0 NA
09/12/2011 Zfere Holdings Inc. $681.8 Equity Partners Fund SPC
06/30/2011 Lawson Software, Inc. $516.0 Golden Gate Capital
09/26/2011 Syniverse Holdings, Inc. $475.0 The Carlyle Group
05/16/2011 Epicor Software Corporation $465.0 Apax Partners
06/10/2011 Audatex North America, Inc. $450.0 Solera Holdings (NYSE:SLH)
08/01/2011 Twitter, Inc. $400.6 Kleiner, Perkins, Caufield & Byers; T. Rowe Price Group, Inc. (NasdaqGS:TROW); Lowercase Capital;
DST Global
04/04/2011 Aspect Software, Inc. $300.0 -
10/18/2011 Dropbox, Inc. $250.0 Accel Management Co, Inc.; Benchmark Capital; Greylock Partners; Institutional Venture Partners;
Sequoia Capital; Index Ventures; RIT Capital Partners plc (LSE:RCP); Goldman Sachs Group,
Investment Banking and Securities Investments; Valiant Capital Partners
07/01/2011 Westlake Services, Inc. $249.6 Marubeni Corporation (TSE:8002); Marubeni America Corporation; iSigma Capital Co. Ltd.

09/07/2011 TrueCar, Inc. $200.0 GRP Partners; Guthy-Renker LLC; United Services Automobile Association; DealerTrack Holdings,
Inc. (NasdaqGS:TRAK); Capricorn Investment Group LLC; McCombs Partners
06/09/2011 Coupons.com Incorporated $200.0 -
04/07/2011 Terremark Worldwide, Inc. $192.1 Verizon Communications Inc. (NYSE:VZ)
11/10/2011 WhaleShark Media, Inc. $150.0 Institutional Venture Partners; J.P. Morgan Asset Management, Inc.; Russian Venture Company (Open
Joint Stock Company), Investment Arm
07/20/2011 Cvent, Inc. $135.9 Insight Venture Partners; New Enterprise Associates; Greenspring Associates, Inc.

01/05/2011 OSIsoft, Inc. $135.0 Kleiner, Perkins, Caufield & Byers; Technology Crossover Ventures
09/21/2011 Rearden Commerce, Inc. $133.0 JPMP Capital, LLC; American Express Company (NYSE:AXP); Citi Venture Capital International

07/25/2011 Airbnb, Inc. $112.0 General Catalyst Partners; Andreessen Horowitz; DST Global
04/04/2011 IO Data Centers, LLC $105.0 Sterling Partners; J.P. Morgan Asset Management, Inc.
07/18/2011 Zfere Holdings Inc. $100.0 Equity Partners Fund SPC
08/29/2011 Kabam, Inc. $86.3 Canaan Partners; Redpoint Ventures; Intel Capital; Pinnacle Ventures; Performance Equity
Management LLC; Google Ventures; SK Telecom Ventures; Keating Capital, Inc. (NasdaqCM:KIPO)

10/24/2011 Workday, Inc. $85.0 T. Rowe Price Group, Inc. (NasdaqGS:TROW); Janus Capital Group, Inc. (NYSE:JNS); Morgan
Stanley Investment Management Inc.; Bezos Expeditions, LLC

09/26/2011 Tumblr, Inc. $85.0 Greylock Partners; Insight Venture Partners; Menlo Ventures; Sequoia Capital; Union Square
Ventures; Spark Capital; The Chernin Group, LLC
09/14/2011 Opera Solutions, LLC $84.0 Silver Lake Partners; Accel-KKR LLC; JGE Capital Management, LLC; Invus Financial Advisors, LLC;
Tola Capital


Outlook for 2012
Key themes in 2012 continue to be economic uncertainty on a global level, the health of the IPO markets, continued
M&A and further penetration of emerging cloud-based product and service offerings. While the majority of software
companies grew in 2011, global economic uncertainty will continue to weigh on consumer confidence, IT
budgeting/planning and overall transaction activity. A major focus for B. Riley’s software group in 2012 will be
centered on growth – who is growing, how are they doing it and what must other players do to keep up. Throughout
the past year, we saw a large number of companies spending heavily on sales and marketing as they sought to capture
market share, even in the face of short run operating losses—the thinking being that handsome profits would be
achieved once critical mass was captured. Some of the software companies with the highest forecasted growth rates,
such as Cornerstone OnDemand, LogMeIn and Qlik Technologies spent nearly 50% or more of revenue on sales and
marketing. Cornerstone spent approximately 60% of its revenue on sales and marketing in 2011; Qlik spent 55%.
Loaded with cash, these and other similar players clearly have the growth engine in place and primed (Qlik still
generated 7% EBITDA margins in 2011). Will companies continue to spend aggressively on sales and marketing, even
in spite of short run losses? For how long? (We believe the answers are yes and as long as customer satisfaction
remains high). Companies must balance these questions along with their engineering, research and development
budgets to ensure they do not fall behind. SaaS companies, in particular, are forced to remain on the cutting edge and
deliver product enhancements to keep their subscription customers happy…switch out costs or not as unbearable as
perhaps they once were.

Access to capital for both public and private software companies will be another major focus of ours, especially as it
relates to open IPO windows and the desire (or reluctance) of private companies to float their stock. If the markets do
not open or are not as receptive as needed, the large number of private equity funds and VCs seeking liquidity will have
to look elsewhere. While a few IPOs early in 2012 have done well thus far (Guidewire recently traded north of $23.00/
share; it went public at $13.00/share on January 24th), a number of companies have yet to recover from the downturn
in late summer 2011. Adding fuel to the IPO fire (or lack thereof) is the over $400 billion of dry powder currently held
by the private equity community—money that will eventually have to be invested. Low interest rates continue to make
debt an attractive and low cost form of financing, not only to fuel growth but to provide leverage in M&A transactions,
something in high need.

Consolidation within the industry will also obviously be top of mind. We will be looking for the next wave of
consolidation to hit various sectors, much as it did for the Human Capital Management vendors in 2011. Key segments
we will be watching are: Mobile, Big Data, Virtualization (especially desktop) and Storage/Data Center. The cloud is
now pervasive and near commonplace. Large and small companies are not hesitating to move to the cloud. We expect
the largest software players to continue spending heavily in 2012. These companies have sophisticated internal M&A
and integration teams that allow them to execute larger transactions that seek to expand customer base, add unique
product features and capture specific vertical market or technology functions. However, regardless of the sector,
companies large and small must make appropriate decisions on how to deploy capital and expends its resources
to generate growth. This means carefully picking your battles. We also believe this means that even the smaller
players who have held on tightly to their cash must eventually begin to find more strategic uses of their capital. This
should happen once executives feel they can grasp a clearer picture of the future economic climate.

Lastly, we will be watching the continued play out of SaaS vs. on-premise license models, as an increasing number of
companies adapt their business/revenue models to meet customer demand and expectations. While SaaS has receive
the bright lights and fame, the recognition is due: most SaaS companies are growing quickly. However, we also believe
strongly that on-premise will serve a need far out into the future and that more companies will offer both models in the
future. On-premise license revenue still dwarfs SaaS revenue, but the gap is quickly shrinking. The gradual adoption of
emerging cloud offerings, such as platform as a service (“PAAS”) and infrastructure as a service (“IAAS”) will also grow
symbiotically with SaaS. Finally, we will keep watch on smaller market trends, such as increased emphasis on and
adoption of emerging software tools within certain industry verticals, such as insurance, education and other niche
sectors that have been either slower to adopt next generation solutions or have been severely negatively impacted by
the economic downturn (e.g, construction, mortgage, etc.).


B. Riley: A Consistent Voice for Middle Market Companies
Headquartered in Southern California, B. Riley is an independent investment bank focused on institutional research,
trading and corporate finance activities for middle market companies. The firm is supported by 70 investment
professionals with offices in Los Angeles, Newport Beach, San Francisco, New York and Philadelphia

 Investment Banking:
 B. Riley’s investment bankers specialize in providing diversified corporate finance products and services to
middle-market companies
 Completed engagements with an aggregate value in excess of $1.5 billion since January 2010
 Research:
 B. Riley’s analysts publish research on over 140 publicly traded securities
 Focus primarily on misunderstood and/or under-followed middle market companies
 Sales and Trading:
 B. Riley’s equity and fixed-income traders make markets in over 150 securities
 Active trading relationships with substantially all major institutional money managers

M&A Capital Formation Financial Advisory
 Buy-Side & Sell-Side M&A  IPOs / Follow-On Financings  Valuations

 Corporate Divestitures  Registered Direct Offerings  Regulatory Compliance Opinions

 Going Privates  Private Placements – Debt and Equity  Corporate Governance Advisory

 Fairness Opinions  Recapitalizations  OTCQX Advisory

 Special Committee Assignments

 Defense Advisory

Undisclosed $39,000,000 Undisclosed $27,500,000 $25,800,000 Undisclosed

Fairness opinion
relating to sale of Sale to Series B & D Sale of assets to
Sale to Numbering Business to Divestiture of AVV to Convertible Preferred
Stock and Senior Credit
Facility

$49,390,000 Undisclosed Undisclosed Undisclosed Undisclosed Undisclosed

Sale of majority interest Merger with
Sale to Sale to to
Financial BPO Management M&A Advisory and
Advisory Services Fairness Opinion

B. Riley specializes in providing comprehensive investment banking services to privately-held,
emerging, software companies in a variety of industry verticals


B. Riley Software Update: 2011 Year End Review & Outlook

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