Plop, Plop, Fizz, Fizz,
Oh What A Relief It Is!
TeleSoft Annual Meeting
Bill Brady
Head of Global Technology Corporate Finance
Credit Suisse First Boston Technology Group
November 9, 2001
Agenda
1. Changing Leaders in the Technology Market
2. Taming the Volatile Equity Markets
3. The New M&A Environment
4. What to Expect in the Future
5. Implications for Liquidity Options
6. CSFB Technology Group - The Clear Leader
Dramatic Growth in New Companies and Market Cap
Technology Companies and Market Cap by Size Now vs. 1990
# Companies
Category
> $1 Bn
$100MM - 1Bn
< $100MM
# Companies
Market Cap ($Bn)
33
322
$2,807
582
$210
759
$23
$194
118
$38
134
$5
All 285
Market Cap ($Bn)
1990
16.5% CAGR
$237
1663
2001
$3,040
24.7% CAGR
Source: Factset based on data from 4/9/90 and 10/31/2001.
The Mighty Have Fallen…
Top 40 US-Traded Technology Companies 1 year ago
Market Value ($BN)
10/31/2000 10/31/2001 %Change
Cisco Systems
Microsoft
Intel
Nokia
EMC
Oracle
Sun Microsystems
IBM
Nortel Networks
AOL Time Warner
Ericsson
Hewlett-Packard
Texas Instruments
Lucent Technologies
JDS Uniphase
Dell
Siemens
* Juniper Networks
Veritas
Alcatel
$387.4
366.1
302.9
186.3
216.9
220.4
178.5
174.8
136.6
117.0
110.9
90.6
84.9
78.9
78.3
76.4
75.5
61.9
57.6
57.5
$123.9
313.2
164.3
96.2
27.2
75.4
33.0
187.7
18.6
209.0
34.4
32.6
48.5
22.9
10.5
62.6
43.1
7.1
11.3
16.1
(68.0) %
(14.4)
(45.7)
(48.4)
(87.5)
(65.8)
(81.5)
7.4
(86.4)
78.6
(69.0)
(64.0)
(42.9)
(71.0)
(86.6)
(18.1)
(42.9)
(88.5)
(80.4)
(72.0)
Market Value ($BN)
10/31/2000 10/31/2001 %Change
Motorola
$54.5
* Broadcom
52.3
Compaq
51.8
TSMC
51.3
Phillips
51.3
Qualcomm
48.7
STMicroelectronics
46.0
* Siebel
44.2
Applied Materials
43.2
Automatic Data Processing 41.2
* Network Appliance
38.2
* Marconi PLC
35.7
* I2 Technologies
34.0
NEC
33.2
* Yahoo
32.7
* Ariba
31.3
* Palm
30.3
* Ciena
30.1
SAP
29.9
* Gemstar
28.1
TOTAL
$36.2
8.6
14.8
42.3
29.6
37.4
25.0
7.5
27.8
32.2
4.4
1.2
2.0
15.2
6.2
0.8
1.4
5.3
18.2
8.4
(33.6) %
(83.6)
(71.4)
(17.5)
(42.3)
(23.2)
(45.7)
(83.0)
(36.6)
(21.8)
(88.5)
(96.6)
(94.1)
(54.2)
(81.0)
(97.4)
(95.4)
(82.4)
(39.1)
(70.1)
$3867.4 $1862.2 (51.8)
* Companies not included in 2001 top 40 list.
Technology Group
This Year’s Leader Board
Top 40 US-Traded Technology Companies Now
10/31/2001
Market Value
($BN)
Microsoft
IBM
Intel
AOL Time Warner
Cisco Systems
Nokia
Oracle
Dell
Texas Instruments
Siemens
TSMC
Qualcomm
Motorola
Ericsson
Sun Microsystems
Hewlett-Packard
Automatic Data Processing
* Electronic Data Systems
Philips
Applied Materials
$313.2
187.7
164.3
137.8
123.9
96.2
75.4
62.6
48.5
43.1
42.3
37.4
36.2
34.4
33.0
32.6
32.2
30.2
29.6
27.8
10/31/2001
Market Value
($BN)
EMC
$27.2
* First Data Corp
25.8
STMicroelectronics
25.0
Lucent Technologies
22.9
* UMC
18.7
Nortel Networks
18.6
SAP
18.2
* Computer Associates
17.8
Alcatel
16.1
NEC
15.2
* Maxim Integrated Products
15.1
Compaq
14.8
* Ebay
14.3
* Accenture
14.1
* Concord EFS
13.7
* Analog Devices
13.7
* Micron Technology
13.6
* Linear Technology
12.4
Veritas
11.3
JDS Uniphase
10.5
* Companies not included in 2000 top 40 list.
0
11-Jul-01
31-May-01
20-Apr-01
12-Mar-01
27-Oct-00
14-Apr-00
01-Oct-99
19-Mar-99
04-Sep-98
20-Feb-98
08-Aug-97
24-Jan-97
12-Jul-96
29-Dec-95
16-Jun-95
02-Dec-94
20-May-94
05-Nov-93
4,000
23-Apr-93
09-Oct-92
27-Mar-92
13-Sep-91
2,500
01-Mar-91
17-Aug-90
2,000
02-Feb-90
21-Jul-89
06-Jan-89
24-Jun-88
11-Dec-87
29-May-87
14-Nov-86
02-May-86
18-Oct-85
05-Apr-85
21-Sep-84
09-Mar-84
1,500
26-Aug-83
11-Feb-83
30-Jul-82
Moore’s Law of Nasdaq Ran Out of Gas in Y2K
January 1983 - Present
5,000
4,500
3,500
Doubles in 1 year
3,000
Doubles in 2 years
Doubles in 4 years
Doubles in 8 years
1,000
500
Equity New Issue Market
Technology Equity & Equity-Related Offerings, 1993-2001
$ Billions
160
$149.6
Convertibles
Follow-Ons
IPOs
140
120
66
$92.0
100
44
80
$58.3
60
$33.2
40
20
0
$40.9
61
35
$18.1
$17.4
40
96
147
30
78
145
145
1993
1994
1995
226
$49.5
240
168
57
$40.1
60
100
124
111
295
221
206
1996
1997
1998
410
366
51
49
27
1999
2000
2001
YTD
US and Int’l Technology transactions completed.
Source: Securities Data Company as of 10/31/01.
Performance of Top IPOs of 1999 and 2000
Top 50 IPOs of 1999
Top 50 IPOs of 2000
2000%
400%
1805%
1800%
350%
1600%
300%
1400%
328%
250%
1200%
200%
1004%
1000%
150%
800%
103%
100%
84%
600%
50%
400%
200%
0%
78%
-6%
0%
-200%
IPO Price
to
12/31/99
IPO Price
to High
-72%
-92%
High to
5/23/00
5/23/00 to 7/17/00 to IPO Price
7/17/00
Current to Current
-50%
-32%
-62%
-66%
High to
5/23/00
5/23/00 to 7/17/00 to IPO Price
7/17/00
Current to Current
-100%
IPO Price
to
12/29/00
IPO Price
to High
Continued Volatility Results in Short Market Windows
PEAKS
1/2/01
1/24/01
4/4/01
5/22/01
6/19/01
7/2/01
9/23/01
10/16/01
Average
Median
# Days
22
48
13
23
27
23
Trough to Peak
24.8%
41.2%
7.8%
21.0%
23.7%
22.9%
TROUGHS
1/24/01
4/4/01
5/22/01
6/19/01
7/2/01
9/23/01
10/16/01
10/23/01
Average
Median
70
28
83
7
47
49
-42.7%
-13.9%
-33.8%
-1.0%
-22.8%
-23.8%
# Days
Peak to Trough
# of Negative Pre-Announcements (1)
1Q 2001
2Q 2001
3Q 2001
4Q 2001
61
110
118
161
(1) 3 weeks into each quarter
M&A Market
Technology Mergers & Acquisitions, 1993-2001
$ Billions
$800.0
$691.0
$700.0
$600.0
$500.0
$400.0
$318.9
$300.0
$200.0
$97.3 $111.1
$100.0
$0.0
# of
Deals
$153.0
$123.2
$33.8
$10.0
$16.6
1993
1994
1995
35
65
95
1996
120
1997
164
1998
228
1999
2000
487
833
2001 YTD
289
Source: Securities Data Company as of 10/31/2001.
Incl. Domestic and Int’l transactions, pending or completed,
with transaction value >$50MM, excl. share repurchases.
Perceptions Towards Strategic Transactions Have
Changed in This Difficult Market Environment…
THEN: MAY 1999
 Acquirors willing to accept
significant earnings dilution for
promise of significant growth
opportunity
 Many bidders drove up valuation
 Public market offered liquidity
events for startups, driving up
valuation
NOW: OCTOBER 2001
Accretion/Dilution
Valuation
 Revenue could be more than one
year away
 Potential for customers
 Small base, many in trial stage
 Highly concentrated revenue
 Acquirors typically accept zero
to small amount of earnings
dilution in exchange for growth
prospects
 Little tolerance for cash burn
 Few acquirors in this market
 Public market more stringent;
therefore, fewer startups
obtaining liquidity
Time to revenue
 Clear path to revenue and
profitability
 Must be at least in customer trial
phase of development
Customer base
 Quality, well-financed and
diversified customer base with
recurring revenue stream
…Resulting in a Challenging Near-Term Environment
Current Status
Valuation
Public Market
Scrutiny

Consolidation activity has slowed significantly from the torrid pace of early 2000

Operating issues have forced many traditional acquirers to focus internally

Market volatility has created uncertainty as to “true values” and hesitancy to make
commitments

Uncertainty over proper valuation levels remains

Many sellers focused on last year’s valuations

Valuation analysis has returned to traditional earnings and cash flow based
methodologies

Consolidators no longer playing with “funny-money”

Public equity markets have become less forgiving of ill conceived or poorly executed
transactions

Heightened scrutiny of both long term strategic and near term financial implications of
any transaction

Integration plans must be well thought out and expertly communicated to the market
at time of announcement

Earnings dilution is a major concern
Many Potential Buyers Have Seen Their Share
Prices Plummet Over the Last Year
PERCENTAGE CHANGE IN STOCK PRICE SINCE MARCH 1, 2000
Comm. Equipment
Nortel
Lucent
eBusiness
Alcatel Cisco
i2
Ariba
C1
Internet Infrastructure
Siebel
Inktomi Akamai
0%
0%
0%
(25%)
(25%)
(25%)
(50%)
(50%)
(50%)
(75%)
(100%)
(68% )
(90% )
(75%)
(72% )
(74% )
(90% )
(75%)
(80% )
(100%)
(94% )
Semiconductors
Intel
(98% )
(100%)
(98% )
(96% )
Optical
JDS
Uniphase Sycamore Corvis
BroadcomPMC-SierraConexant
(99% )
Amazon
0%
0%
(25%)
(25%)
(25%)
(50%)
(50%)
(50%)
(75%)
(75%)
Yahoo!
(83% )
(91% )
(88% )
(85% )
(100%)
(94% )
(98% )
Note: Corvis and New Focus data is from IPO Pricing of $36.00 and $20.00, respectively.
Let’s not forget the companies
that have gone bankrupt:
(94% )
(100%)
AOL
eBay
(23% )
(44% )
(56% )
(100%)
(99% )
Internet
New
Focus
0%
(75%)
VeriSign InfoSpace
(88% )
(93% )
As a Result, Companies Have Begun to Use Cash
To Fund Their Acquisitions

With stock prices at record lows, the notion that cash is king is being reinforced

In particular, large cap companies with depressed P/Es are using cash as their preferred
acquisition currency

Sellers prefer liquidity in these uncertain times

Interest rates are at unprecedented lows

Many companies are taking advantage of the convertible market’s tremendous appetite for
technology issues to build “war chests”
SELECTED ACQUIRORS USING CASH AS ACQUISITION CURRENCY
Annc.
Date
Target / Acquiror
FD Equity
Value ($MM)
NTM
P/E
Premium Paid
1-Day
30-Days
Prior
Prior
Acquisition Currency
2/22/01
1,492
NM
89.9%
121.2%
Cash
6/11/01
1,208
54.9
91.5%
101.9%
Stock/Cash
4/24/01
1,000
-
NA
NA
Cash
3/30/01
400
-
NA
NA
Cash
10/2/01
200
-
NA
NA
Cash
VC Returns Under Pressure
Cumulative Vintage Year Performance of U.S. Venture Capital Funds
150%
125%
100%
75%
50%
25%
0%
69- 76- '80 '81 '82 '83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00
75 79
Pooled IRR average % (03/31/01)
Pooled IRR average % (12/31/00)
Pooled IRR average % (09/30/00)
Source: Venture Economics Information Services
Market Rallies and Subsequent Downturns
MARKET
RALLIES
Length
Trough to Peak:
NASDAQ
S&P 500
Range of S&P
500P/E Multiples(1)
AND SUBSEQUENT
DOWNTURNS
Length
Peak to Trough:
NASDAQ
S&P 500
Range of S&P 500
P/E Multiples(1)
8/1/82 6/22/83
12/13/84 8/21/87
10/28/87 10/9/89
10/11/90 3/18/94
12/9/94 7/20/98
10/8/98 3/10/00
11
33
24
42
44
17
96%
60%
91%
108%
66%
54%
147%
59%
180%
165%
256%
45%
11x – 13x
10x – 22x
11x – 15x
14x – 26x
15x – 29x
28x - 34x
6/22/83 12/13/84
8/21/87 10/28/87
10/9/89 10/11/90
3/18/94 12/9/94
7/20/98 10/8/98
3/10/00 10/31/01
18
2
12
9
3
20
-27%
-5%
-36%
-31%
-33%
-18%
-11%
-5%
-30%
-19%
-67%
-24%
9x – 13x
15x – 20x
14x – 16x
15x – 20x
24x – 28x
23x – 29x
Net Market Move
%
95%
176%
NASDAQ
S&P 500
(1)
Trailing P/E multiples.
Net Market Move
CAGR %
8.5%
13.2%
%
419%
259%
CAGR %
16.1%
12.3%
Recessions Are Followed by Market Rallies
 There have been 5 recessions in the
U.S. since 1969
 The average recession lasted for 12
months and resulted in a 2%
contraction in GDP
 During recessionary times, the S&P
500 has not demonstrated significant
drops, except in ‘73 - ’75 (-23%)
Overviews of Previous Recessions
Recession
Length of
Recession
Dec-69 - Nov-70
12 Months
-0.6%
-7.0%
18.7%
Nov-73 - Mar-75
16 Months
-3.0%
-23.0%
38.8%
Jan-80 - Jul-80
7 Months
-2.2%
12.7%
19.9%
Jul-81 - Nov-82
17 Months
-2.9%
5.6%
23.9%
9 Months
-1.5%
4.8%
12.4%
12 Months
-2.0%
-1.4%
22.7%
Jul-90 - Mar-91
Average
 Markets begin to recover one quarter
before the trough and gain an average
of 23% in the following 6 months
 CSFB Technology Research
anticipates that tech sectors should
experience a recovery in the next 6
quarters, with a concentration during
Q2 - Q3 of 2001
3M Pre - 3M Post
Trough
Peak-to-Trough
Decline in Performance Of
GDP
S&P500
Performance Of
S&P500
Expected Timing of
Recovery by Sector
Q4'01
Comm. Equipment
Semiconductors
IT Services
Internet Infrastructure & Services
PC & Hardware
Electronics & Contract Manufacturing
Software
Q1'02
Q2'02
Q3'02
Q4'02
Q1'03
Implications
Don’t Count On:

Return to “irrational exuberance” any time soon

Indefinite losses will be bankable

Me-too, undifferentiated companies will be bankable

Valuations on private financings will hold up
Plan To:

Focus on business model, sponsorship, uniqueness, barriers

Develop alternative financing plans, merger partners

Shift business models to accelerate profitability and cash flow

Finance ahead of needs when windows present themselves
The Bar is Set Higher for IPOs
2000
2001
Revenue Base (in
quarter going public)
$2 - 5MM
$10MM
Time to Profitability
6 - 8 Quarters
2 - 3 Quarters
Valuation Metrics
Revenue Multiples
P/E Multiples
Equity Private Placement Market Overview

Flat to down rounds

Months, not weeks to complete

Fully-funded business plans only

Fewer buyers

3-5x returns to IPO within 1-2 years
Current M&A Environment

Strategic rationale for M&A stronger than ever

Few deals near-term due to “reality distortion field”

Strategic buyers’ currency and confidence reduced

Sellers’ value expectations need to adjust

Financial buyers’ interest growing

Expect strong rebound in M&A as reality sets in
The Clear Leader in Technology Investment Banking
2000- 2001 Total Technology
Financing and M&A
2000- 2001 Total Technology
Financing and M&A
(Number of Deals)
(Dollars in Billions)
400
402
$400
350
$382.8
$352.2
$350
300
250
240
$300
238
197
200
$192.8
166
$200
$185.0
146
150
101
100
$132.7
$103.4
$150
100
$81.1
$100
50
0
$238.9
$250
$50
CSFB MS
GS
JPMCIT/SSB ML DBAB RS
$0
Notes:
Transactions announced 1/1/00 through10/31/01. Includes private placement deals.
(1) JP Morgan deals include deals completed by H&Q.
CSFB MS
GS CIT/SSBJPM
ML
LEH BofA
CSFB: Clear Winners Do Not Need Recounts
Reuters’ Survey of Fund Managers*
Investment Bank
2000
1999
Credit Suisse First Boston
23%
11%
Goldman Sachs
17
14
Morgan Stanley Dean Witter
16
14
Merrill Lynch
9
12
Salomon Smith Barney
6
12
Ranking
Category
1st Place
2nd Place
Quality of new equity issues
Morgan Stanley
Pricing of new equity issues
DLJ
Quality of research product and
service in the aftermarket
Goldman Sachs
Aftermarket performance of
equity issues
Morgan Stanley
Equitable allocation of new
issue product
Morgan Stanley
Due diligence on new issues
Morgan Stanley
* In a survey dated July 19, 2000, Reuter’s surveyed 75 of the largest institutional managers of active US equity funds.
Responses have been weighted by fund size.
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