“Rare Air” A Technology IPO Discussion with Blackstone

The Blackstone Group LP

October 2011

Eric McAlpineManaging Directoreric.mcalpine@blackstone.com

www.blackstone.comTwitter: @Blackstone

$0

$125

$250

$375

$500

0% 25% 50% 75% 100%

“Rare Air”— An Enviable and Small Club of Technology IPOs

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Source: Capital IQ. Company filings, Wall Street consensus estimates. Data as of 9/23/11.Note: Data for US technology IPOs from 1/1/10 to date. Excludes Private Equity (LBO) backed IPOs and recently priced IPOs where forward projections are not yet publicly available. (1) LTM revenues as of the date of IPO. Companies with LTM revenues greater than $500M shown as $500M on graph.(2) Forward revenue growth represents LTM to NTM revenue growth as of the date of IPO.

Scale vs. Growth for Recent Technology IPOs (2010 – 2011 YTD)

Few companies to date have attained “rare air” status – significant scale and growth. Highly anticipated IPOs for category leaders such as Facebook, Groupon, Zynga, etc. could create an enviable club of companies with both attributes.

LTM

Rev

enue

($ in

mill

ions

) (1)

Forward Revenue Growth (2)

CNVO

ELLISQI

MERU

IPHI

DVOX

MKTG BSFT

MOTR

TNAV

RLD

CALX

IL

QLIK

NPTN RLOC

DMD

AOSLACTV

QNSTGGS

FFN

MITL MX

FN

NQSQNS

CSOD

RENNMXL

LEDS

ONE

“Rare Air”

“The Pack”Anticipated Potential “Rare Air” IPO candidates

AWAY “Knocking on The Door”

Z CARB

TNGO

SSNC

2

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Source: Capital IQ. Market values as of 9/23/11.

Valuation Multiples in Technology are Being Driven by Growth

3

Valuation multiples in the technology industry are predominantly driven by a combination of top and bottom line growth.

TEV / 2011E Revenue vs. 2011E Revenue Growth Price / 2011E EPS vs. LT EPS Growth

SemiconductorsHardware

Internet

Comm. Equipment

SoftwareServices= TEV: $500bn

R² = 0.6892

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

0.0% 4.0% 8.0% 12.0% 16.0% 20.0% 24.0%

TEV

/ 20

11E

Reve

nue

2011E Revenue Growth

R² = 0.8657

4.0x

9.0x

14.0x

19.0x

24.0x

29.0x

5.0% 10.0% 15.0% 20.0% 25.0%

Pric

e /

2011

E EP

S

LT EPS Growth

15

93

117

82

55

69

0

25

50

75

100

125

< 0% 0% - 5% 5% - 10% 10% - 15% 15% - 20% > 20%

Internet Services Software Comm. Equipment Hardware Semiconductors

4

Where’s the Growth in Public Technology Companies?

Current public technology companies no longer represent the high growth opportunity equity investors had come to expect. Technology equity investors are looking to the IPO market, albeit selectively, to gain exposure to growth and alpha.

2011 – 2012 Public Technology Market GrowthExpected ’11 – ’12 Revenue Growth for Technology Industries Excluding Hardware and Semiconductors

Revenue Growth

Num

ber o

f Com

pani

es

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Source: Capital IQ. Data as of 9/23/11.

Revenue Growth ('11-'12) Median Mean

Internet 17.3% 18.2%Services 6.5% 8.1%Software 11.6% 12.7%Comm. Equipment 9.8% 11.1%Hardware 5.2% 7.3%Semiconductors 8.8% 10.9%Overall 9.7% 11.5%

0

2

4

6

8

10

12

0%-10% 10%-20% 20%-30% 30%-40% 40%-50% 50%-60% 60%-70% 70%+

0

2

4

6

8

10

12

14

$0-$50 $50-$100 $100-$200 $200-$300 $300-$400 $400-$500 $500+

Technology IPOs Offer Investors Access to Outsized Growth Stories

5

The majority of technology IPOs since 2010 had LTM revenues in excess of $100 million with forward revenue growth exceeding 20%, or double the growth of the average public technology company.

LTM Revenue Distribution of Recent IPOs (1)

($ in millions)Forward Revenue Growth Distribution of Recent IPOs (2)

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Source: Capital IQ. Company filings, Wall Street consensus estimates. Data as of 9/23/11.Note: Data for technology IPOs from 1/1/10 to date.(1) LTM revenues as of the date of IPO.(2) Forward revenue growth represents LTM to NTM revenue growth as of the date of IPO.

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