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May 19, 2001 Joe Dews Jdewsneedhamco

The M

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May 19, 2001 Joe Dews Jdewsneedhamco

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    2. The M&A Market in Q1 2001

    3. What a great time - Q1 2000 Large companies, with huge market caps and sky high stock multiples were bidding incredible prices for early stage companies There was unlimited and practically free cash available in the public and private equity markets – so what did burn rates matter? “You snooze, you lose” was the mantra

    4. M&A in Q1 2001 M&A came to a virtual halt: Buyers don’t know what to pay Buyers have seen their own stocks punished Buyers are focused on figuring out their own businesses Burn rates and earnings dilution are again a focus There will be no buyers for many venture backed companies without clear business models

    5. Where have all the buyers gone?

    6. Where are the big deals?

    7. Acquisition currencies have been damaged

    8. The great buyers have stopped buying in 2001

    9. Where we are today? PowerPoint presentations “Press Release” companies Multiple of pro-forma forecast 2005 revenues Investors who “got it” Public venture capital Momentum investing: Buy on chart moves and sell quickly “0 to IPO” in under a year Promoting the stock the primary focus ‘Twenty-something” fund managers “Twenty-something” IPO jockeys

    10. M&A Banking for the Best Deal in the Current Market

    11. Points of Discussion

    12. Just in case I run out of time, here are the short answers

    13. Who are leading firms working with software and Internet companies, and how to identify and engage a banker

    14. Structure of the Investment Banking Industry

    15. What are typical fee arrangements

    16. The range of services provided by bankers in the M&A process

    17. Sale Process and Transactional Issues

    18. What is some of the value a banker can provide

    19. Resources an Investment Bank can Provide

    20. How valuation is set from the target’s perspective and how valuations have changed over the past few months

    21. Sale Process and Transactional Issues

    22. Sale Process and Transactional Issues

    23. Issues in selecting the best acquisition partner

    24. Sale Process and Transactional Issues

    25. Sale Process and Transactional Issues

    26. Assistance, if any, that acquisition bankers might provide following completion of the deal

    27. What type of companies Needham is now working with

    28. What kind of deals we are turning away.

    29. Perspective on the current tech stock market

    30. The current market for tech stocks The late 1990’s was an aberration in the public markets unlikely to reoccur in our generation

    31. Where have all the billions gone?

    32. In the first half of 2000, the flow of cash into stock mutual funds reached an unprecedented pace. However, turbulence within equity markets during the second half of 2000, particularly the fourth quarter, has caused a sharp decline in mutual fund flows. Overview of the Equity Market

    33. Large decreases in margin debt coincided with broad market sell-offs in the late summer/fall of 1998, in April 2000 and in the fall of 2000. Decreases in margin debt were of a higher magnitude in these periods than positive net cash flows into mutual funds. Overview of the Equity Market

    35. Will history repeat itself? This crash was the “big one” for tech stocks The market crash of 2000 - 2001 makes the earlier post WW II tech stock crashes looks like mere fender benders A frightening thought - The recovery time from the two prior tech stock crashes was each 8 years

    36. Will history repeat itself?

    37. Where is the market for tech stocks going? Favorable monetary, and fiscal outlook Continuing rapid obsolescence Productivity gains continuing based on recent information technology investments Strong world position of the US Interest rates lower than in previous downturns. Inflation tame Investors have not given up on equities Mutual funds have not yet seen significant outflows. Technology stocks have been trading at a slight discount to non-techs Still no “surprise” shock from left field Some renewed life in the stock and IPO markets in Q2

    38. The IPO Market in Q1 2001

    39. Year to year change in volume of IPOs

    40. The tech IPO market dried up in Q1 2001

    41. Tech IPO backlog dropped away

    42. If this one didn’t work . . . Loud Cloud Inc.

    43. If this one didn’t work . . .

    44. The private equity market in Q1 2001

    45. Impact of the markets on private equity investments The “Crossover” hedge and mutual fund, foreign and corporate investors that gave the edge to valuations in 1999 - 2000 are largely on the sidelines Many private equity investors are wondering what exactly is it that they bought in 1999 and 2000 Private equity funds face massive needs to continue to support existing portfolio companies that were expected by now to be public or be sold As a consequence, many established funds are focused on the needs of existing portfolio companies and not on adding new investments

    46. Private equity returns are coming down Expect time to liquidity now of 4 - 5 years Expect dramatically lower returns than over the past five years Many 1999 and 2000 funds will show negative returns

    47. US venture investments

    48. US venture investments

    49. Valuations are coming down in many sectors New rounds are difficult to raise at last round or, in many cases, at any valuation Desperate efforts to avoid write-downs on new rounds (e.g. 3x or more preferences on new rounds, large warrant packages) serve to reduce the effective valuation while still keeping the last round nominal price Pre-money valuations are dropping dramatically when new investors are needed

    50. It is a good time to be a private equity investor It is a much better time to invest in new investments than for the past three years (if you have any money and time left after caring for your investments of the past two years)

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