Silverwood Partners - NAB 2012 - Strategic Industry Analysis

8/2/2019 Silverwood Partners - NAB 2012 - Strategic Industry Analysis

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StrategicIndustryAnalysis

Investment Bankers

32 Pleasant StreetSherborn, MA 01770

www.silverwoodpartners.com Member FINRA and SIPC

Jonathan Hodson-Walker Nick McCoy508.651.2194 508.651.2441

[email protected] [email protected]

Joshua Stinehour Brian Zapf

508.651.8134 508.651.8135

[email protected] [email protected]

April2012


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Copyright Silverwood Partners 2012

Invitaon:SundayStrategySession

Page 1

ClickhereforfullagendaonNABwebsite
http://expo.nabshow.com/mynabshow2012/public/SessionDetails.aspx?ParentSessionID=2122&FromPage=nz_ALSessionSearch.aspxhttp://expo.nabshow.com/mynabshow2012/public/SessionDetails.aspx?ParentSessionID=2122&FromPage=nz_ALSessionSearch.aspxhttp://expo.nabshow.com/mynabshow2012/public/SessionDetails.aspx?ParentSessionID=2122&FromPage=nz_ALSessionSearch.aspx


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LeadingMediaTechnologyInvestmentBank

Page 2

Selected Media Technology Engagements

Firm is highly active in media technology transaction flowFirm has worked with many leading media technology companies advising or

selling companies to some of the premier companies in the industry


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NAB2012:ExpectedTalkoftheShow

Page 3

MirandaProvidesUpdateRegardingBoardAcons

-Mar.15,2012

theboardofdirectorsdeterminedthatamorestructuredprocess

shouldbeputinplaceinordertoenabletheCorporaontoreviewfurtherexpressionsofinterestandtoholddiscussionswithpotenal

strategicpartners.MirandaPressRelease

.Ourteamisnowlaser-focusedondevelopingastrategyforthisbusiness

[Broadcastdivision]thatmaximizesshareholdervalue.WilliamBrownCEO,EarningsCall(Sourced:SeekingAlpha)

-January31,2012

KITDigitalImplementsManagementandBoardChanges

-March23,2012

Thestrategictransaconprocess,whichisunderwayatthedireconoftheboard'sSpecialTransaconCommiee,isatapacethat

requiresmy[Chairman,KaleilTuzman]dedicatedfocus

KITPressRelease

$5Billion

5xRevenue

18xEBITDA IPO

Raised$55Million

Currentlytrades

at10xRevenue

-Feb.17,2012Channel-in-A-BoxMarket

isHot,Crowded

-Oct13,2011

OngoingCorporateTurnaroundsThisdivesture[Broadcastbusiness]isanimportantpartofourstrategytotransformSeaChange

intoapureplaysowarecompany,significantlyreduce

ouroverallcoststructure,andstrengthenourabilityto

compete

-SeaChangeCEORaghuRau

wehaveimplementedtherestructuringweannouncedinOctoberandexpectto

seeaddionalbenefitfromtheseaconsin2012.We

connuetoidenfyandimplement

changesacrosstheCompanytohelpimprove

ouroperaonalperformanceAvidCEOGaryGreenfield

-March21,2012

HarrisCorporaon

ReviewingPorolio

Acquires

Cloud

MAM

SaaS

SociallTV

Mul-Plaorm

SecondScreen


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NAB2012:KeyStrategicTopics

3

Page 4

ImplicaonsofEndofFour-YearPurchaseCycle?

2

WhereistheGrowth?

ImpactofAccelerangTechnologyChange?4

ConsolidaonConnues

ValuaonisaFunconofGrowthandProfitability

Summary

5

6


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2011:StrongOperangResults

Page 5

31

9

5

34 102

19

14

27

21

30

3

6

64

24

3IndustryIndex

12

16

Source: Thomson One, Company filings Relevant Business Unit Performance most recent operational period available

SelectedVendorPerformance:takenfrommostrecentreporngperiod

Last12monthsrevenuegrowth(percentage)

47

2

9

4

51

59

41

0

0

0

2

69

(2H2011 vs. 2H2010)


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2012AcveCalendarofEvents

Page 7

40Elecons=40incumbentgovernmentsspendingmoney+40policaladversingcampaigns

LondonSummerOlympics,EuropeanSoccerChampionship

USPolicalAdversingaloneforecastedat$9.8billionin2012

BroadcastTVtoget57centsof

every$1spent.Source:BorrellAssociates

Source:IEFE


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Wearehere


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Copyright Silverwood Partners 2012 Page 9

FourYearBroadcastPurchaseCycle

Page 9

20122006 2007 2008 2009 2010 2011

Confidence falling

Customer deferrals significantPressure on prices

Confidence continues to grow

Order volumes increasing,values improved

Price competition increasedmarkedly

Confidence high globally

Increase in ordersexceeding expectations

Selling prices resilientSignificantly increasedconfidence

Downward pressure on prices

Confidence at an all-time high

Better than expected order

volumesIndustry is bristling with activity

Confidence high

Better than expectedorder volumes

Modest confidence level

Order levels as expected andstable

Selling prices remain resilient

USGDP2.7%

0.3%

3.0%

3.5%

1.9% ?1.7%

ExcerptsfromIABMIndustrySurvey

IABMM

arketSizing

Source:IABM

Source:USBEA


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TransaconAcvity;ExpectAnnouncements

Page 10

20122008 2009 2010 2011

Dec08

Dec08

Mar09

Aug09

Mar10

Jun10

Sep10

Dec10

Dec10

SelectedTransacons

TransaconAcvityLevel

Mar11

Feb11

Dec11

IABMM

arketSizing

May10

(SilverwoodIndustryObservaon)

Mar12

Jan12

BroadcastService

Mar12Broadcast

XORMedia


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WhatHappensin2013?

Page 11

Overtheimmediateyears[2009,2010]ahead

the[broadcasttechnology]marketisforecastto

growat11%compoundperannum.

-IABMIndustrySourceBook,2008

Wedonotexpectsignificantspilloversfromthe

subprimemarkettotherestoftheeconomyorto

thefinancialsystem.

-BenBernankeMay2007

PrediconisDifficult

FutureGrowth,EventsinEmergingCountries

HighlightedAreas

VendorswithMorethan50%

PercentageofSalesinBroadcast

AdjacentUseCasesofTechnology

Source:IMF

2012ForecastedGDPGrowthbyCountry

Vendorswithlessthan50%

Non-broadcast

revenueto

increase(Source:Silverwood)


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WhatHappensin2013M&AMarket?

Page 12

Equity

Markets

Credit

Market

Economic

Acvity

Confidence

Level

Apr07 Apr08 Apr09 Apr10 Apr11 Apr12

MediaTech

Industry

Factors

Apr13

?

M&AMarketIndicatorsFollowedbySilverwood


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Aer2013?EvolvingValueChain

Page 13

ContentPackaging ContentDistribuon ConsumponContentProducon

HowtomeetChangingCustomerPreferences?

Staons12

OnlineRevToSoar

MarchMadnessDigital

ViewingGenerates$60

MillioninAdSales

Highlights

fragmentaon:19millionwatched=>

380milliondidn'twatch

iPhonesAreStaons

HoestTool

IstheSet-TopDuopolyonIts

Deathbed?

TabletsHelpingImproveNewsConsumpon

TWC'sStern:TVWillEvolveTo'Pandora-Like'Mode

WalmarttoBridgeOnlineGapWithDisc-

to-Digital

NewNielsenRangstoMeasureTVand

OnlineAdsTogether

AppleTVsetto

becomingin2013

ABC,NielsenTeamToMeasureiPad

VideoConsumpon

IntelTVPlanFaces

LongOddsAgainstSuccess

AProposalForHollywood:

ToSurviveTVDisrupon,

GoCompletelyLive

TheNewYorkTimes

AdoptsOnlineVideo,ChangingfromWithin

NBALeaguePass:The

FutureofOnlineSportsVideo

ConnectedDevices

BecomeKeytoContent

Consumpon

GoogleAimstoOffer

KansasCityTV

SampleofStoriesandAnnouncements

PlansforTV

EverywhereBogDown

SuperbowlOnlineStreamingWas

itaSuccess?

NFLaccountsfor9of

10highestratedtelecastsin2011(US)

Source:Nielsen

Source:Nielsen


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1

3

Page 14


WhereistheGrowth?


ConsolidaonConnues


Summary

5

6


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Growth+Profitability=ValuaonEscalaon

The Importance of Growth and Profitability Key Tenets

n Growth at the expense of profitability can be tolerated if there is a reasonableexpectation of profitability or potential for value enablement or maintenance

n Profitability and cash flow generation are the ultimate fundamental prerequisitesfor any enterprise losses can be financed with the expectation of profitability

n Growth + Profitability = Valuation Escalation: The sweet spot for value creationn Profit can be internally generated through operational success; however,

profitability has equivalent relationship with cost avoidance in M&A:

n Buy vs. Build: Avoid costs ofenterprise replicationn Tactical Strike: Avoid fallout and loss of profit from commercial attrition

n Partially explains why high valuations can be achieved for businesses in M&A

Page 15

ValuaonEscalaon

ProfitabilityGrowth =+

M&AFramework

Generatedor

Facilitated

Generatedor

Facilitated

Generatedor

Crystalized


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RiskMigaon=ValuaonEscalaon

Mitigation of Risks to Growth and Profitability Valuation Impact

n Business risk takes many forms; each risk has an impact on valuation inisolation and in an M&A transaction context

n Quantifying, projecting, shaping and controlling perceptions of risk avoidance ormitigation is an essential aspect of M&A preparation and execution

Page 16

Type RepresentaveRisksOperaonal Howeasyisittorunabusinessrepeatableprocesses,availablestaff?

Execuon Howeasyisittoexecuteagivenplanofacon?

Dowehavetherightpeoplerunningthebusiness;aretheyperformingopmallyasindividualsand

asateam?

Assponsoringexecuve,doesthisM&Adealhelporhurtmycareerwithin[xyz]largecompany;do

Iknowandtrustthetargetandpeople?

Product Arewemakingproductsthatourcurrentcustomersornewcustomerswanttobuy?

Willcustomersbuytheproductwehavedevelopedforthem?

Market Howsuccessfulwilltheenterprisebeinenteringnewvercals(industries)orgeographies?

Customer Arewemeengourcustomersneedsorareweatriskoflosinganaccountorinstallaon?

Financial Dowehavethecapitalresourcestoexecuteonourplanwithareasonablelikelihoodofsuccess?

Canthecapitalweraisebedeployedtocreatevaluesufficienttooffsetthediluonassociatedwith

thefinancing?


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WhatInterestsPublicMarketInvestors?

Page 17

Largepoolofpotenalinvestmentsmanylargecap,low-growthstocks

Investorsfocusedondividendandearningsstream

Tradeinefficientrange,basedonmarket-levelmulples

Fewlargecompanieswithsubstanalgrowthstronginvestorandanalyst

following

PremiumvaluaonataracvemulplesSubstanalliquidityinacvelytradedstocks

Investmentcommunitydemandshighgrowthfromsmallcapcompanies

Requiressubstanalinvestmentinsalesandmarkeng

Requirescashtofinancegrowth;investortoleranceforreducedprofitability

Lowtradingvolumeformicro-cap;nonaturalbuyers

Depressedsharepricecanbemorereflecveofstructuralstockmarket

circumstancesthanintrinsicvalueofbusiness

Interesngtoagitatorsandincontextofatransacon

Growth

MarketCapitalizaon

Low/NoGrowth

Mid/LargeCapSmallCap

High

Growth

NO

YESYES

YES

$300Million-$1.5Billion(S&P) $1.5Billion+(S&P)


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MirandaCaseStudy:InstrucveLesson

Page 18

Growthsubstanallyinexcessof

IndustryConsistent,StrongProfitability

~20%EBITDAMargins

Dec.13,2011,JECandJMBiniatepublicagitaonforsaleprocess

42%

41%Mar.21,2012,Mirandaannouncesstructuredsaleprocess

Dec31,2005Dec12,2011

Dec13,2005Mar26,2011

7.2%

=

11.1%vs.

CAGR20062011

Sector

IPODec2005


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Miranda:GrowthStory

Page 19

IPOProspectusDecember2005

IPTV

UnderappreciatedbyPublicMarketInvestors

InvestorPresentaonMarch2012

EmergingMarkets

ReferencedGrowthDrivers

DigitalTransion

ExpansionbyServiceProviders

HDTransions

ChannelProliferaon

EmergingMarkets

ComplexityatServiceProviders

HDTransion

ChannelProliferaon

OTT/VOD


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WhatisMarketRewarding?

Page 20

3.0x

1.0x

StrategicTechnology SustainablePosion/StrongGrowth StrongOperangPerformance

TEV/Rev(LTM)

GoodTechnology,PossiblyStrategic Near-TermGrowthSustainable? MixedOperangPerformance

TechnologyMatureorUnderappreciated

UncertainorEvolvingGrowthStory MixedOperangPerformance

RepresentavePublicCompanies


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PrivateCompanyStrategicPosioning

Page 21

Appealingtargetforventurecapitalfirms

Needexpectaonofconnuedgrowth

Requiresidenfiableexit

Growth

RevenueLevel

Low/NoGrowth

Medium/LargeSmall

High

Growth

Ifstable,desirablelifestylebusinessShouldgrowthescalate,addionalcapitalrequiredtofundoperaons

(VC)

Considercombinaonwithotherbusinesstobenefitfromaddional

scaleandresources

Receivinginboundcallsfromgrowthequity/privateequity

investors

Opportunitytogopublicwhenmarketcondionsarefavorable

Opportunitytoselecvelyaugmentgrowthwithacquisions

Challengingtogeneratemeaningfulorganicgrowth

Considerdivesngunderperformingornon-core

assetsPurchasebusinessestoaccelerategrowth,improveposioning


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Growth:IncreasinglyDifficultwithSize

TypicalVendorGrowthRatesAtVariousRevenueLevels

LeverageindustryrelaonshipsSasfyunmetmarketneedProvidealevelofcustomeraenonuneconomicalforlarger

vendors

Growthbeginstoslowasothervendorsreact,offering

compengsoluonsanddiscounts

Challengeavoidingcustomserviceofferingforeachclient

AllnaturalcustomerswonTakingbusinessfromincumbentprovidersdifficulttodoonprofitablebasis

Increasinglydifficulttoinnovate

Page 22


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OrganicGrowthisExpensive

CommonSizeIncomeStatement

(%ofRevenue)

Item (%ofRevenue)

Revenue 100%

GrossProfit 50-70%

S&M 3040%

R&D 1020%

G&A 10%

TotalOpEx 5070%OperangIncome (20)20%

Key Takeaways

nAverage industry participantgenerates 50-70% gross margin

n Majority ofoperating budgetspent on S&M (75% of

marketing spent on NAB/IBC)n R&D budget varies across

business models; typically10 20% ofrevenue

n G&A smallest component ofoperating budget

n Total OpEx range requires50 70% gross margin to break

even


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BrightcoveCaseStudy

CapitalRaised

(PostIPO)

$150+M

$63.6M

Annual

Sales

($mil) 2009 2010 2011 2012E1 2013E1

Revenue $36.2 $43.7 $63.6 $77.4 $98.3

Growth% 48% 21% 46% 22% 27%

GrossMargin 71% 65% 67%

OperangExpenses%ofGrossProfit:

R&D 35% 81% 35%

S&M 51% 84% 73%

G&A 26% 34% 29%

Op.Income ($3.1) ($17.4) ($16.1)

Wehaveahistoryoflosses,weexpecttoconnuetoincurlossesandwemaynotachieveorsustainprofitabilityinthefutureouroperanglosseswillconnueorevenincreaseatleastthrough2012

Capital Intensive, Time Intensive to Build a SaaS Business

nDespite positioning and growing market opportunity, substantial ongoinginvestments required in R&D, sales & marketing to generate growth

Source:BrightcoveSECFilings;(1)ThomsonFinancial

Source:BrightcoveIPOProspectus


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1

WhereistheGrowth?


ImpactofVendorConsolidaon


Summary

5

6


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2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Page 26

MediaTechnology:IndustryGrowth

Page 26

HDandfile-basedworkflowskeymarketdrivers IPinfrastructureishavingamajorimpact Emergingmarketswillconnuetoexperiencedoubledigitgrowth

Purchasedecisionsarebeginningtobebasedonoperaonalfunconalityratherthan

technology

Serviceshavebecomeanincreasinglyimportantporonofthemarket

Newtechnologypurchasersareenteringthemarketfromotherindustries

NewvendorsaretakingadvantageofITtrendsandthemovementtowardscheaper(andoen

moreopen)sowareplaorms

SignificantFindings(Source:ScreenDigest)

Industrygrowthin-linewithworldeconomic

growth(Source:IABM)

Expectaons Expectaons

OngoingHDTransionslllessthanhalfcomplete

Connuedshitosoware-focused,IT-basedproducts

Emergingmarketsconnuetohavestrongeconomicgrowth

addionalacvityaroundOlympics,WorldCupinBrazil

IPtransionaccelerangasagingformatsarereplaced

Servicesbecomeevenmoresignificantporonoftotal

industryrevenues

NoGrowth(~0%Growth)

NegligibleGrowth(~2%AnnualGrowth)

ZeroSumGameOnevendorsgainis

anothervendorsloss

20082012 20122015 2015

ModestGrowth(~5%AnnualGrowth)

IABMM

arke

tSizing


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WhatistheTrueAddressableMarket?

Page 27

AbsoluteNumber

ofPotenalSales

VS PotenalRevenueAccessible

4% 32%18%5%9%10%18% 4%

Geographical TargetCustomer SalesReach

Directvs.Indirect NumberofSalesReps MarkengBudget PartnerRelaonships Training

SalesDynamic

Low-Touch

Vs.

High-Touch

MarketSegmentaon

to extend our offerings into these new markets requires obviously a

different marketing approach, different networks to sometimes differentchannel partners, different price points, different value propositions etcetera. So its a challenge for a small company

- Michael Wellesley-Wesley, CEO Chyron, Q4 Earnings Call

(Source: IABM 2008 Industry Guide Book)


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ChangingCustomerFocus

Page 28

Expectation of Revenue Shift Among Customers

n IABM End-User survey confirms expectation among end-users of shift ofrevenue dollars from traditional broadcast to new mediums


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ChangingCustomerFocusinContext

Page 29

Source:eMarketer,(1)CiInvestmentResearch

June2007Forecast

June2011

Forecast Onlinevideospendwillbe3.6%ofTVin2011

Youtubemayaccountforgreaterthan60%of

market(1)

Evenwithgrowth,marketersin2015will

spend$100ontelevisionadsforevery

$10foronlinevideo

USOnlineVideoAdversingSpending

Disproportionate Focus on Online, Emerging Mediums

nRevenues from emerging mediums remain insignificant in context of traditionalbusiness models; however substantial attention from end-users oftechnology


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OnlineVideoPredicons2012Predicon#1:OnlineVideoAdversingMatures

Predicon#2:ConnectedandMobileDevicesDominate

Predicon#3:ContentEvolves

Everyone at the negotiations table is more savvy, and there will be a big push to extract as much value as possible for content and content distribution.

Ian Blaine, CEO and Co-Founder, thePlatform

The massive amount of money we have been seeing poured into video ad-networks this year (2011) will allow a more

aggressive fight for market share and significant margin cuts[

] Ran Harnevo, SVP Video, AOL

During 2012 most online distributors will have the same content available,

so nowthe race can begin on who can present differentiated content first.

Jan Steenkamp, VP, Business Development, Irdeto

Companies like Ericsson, Cisco, Motorola Mobility, Technicolor and others will finally sell or spin off their set-top

divisions. The groups are generally less strategic, not growing in meaningful size (and sometimes shrinking), andIP video needs a new wave of development that current set top groups are better at starting with a clean slate. Ben Weinberger, CEO and Co-Founder, Digitalsmiths

Source: VideoNuze

Mobile video is continuing to grow at a phenomenal rate. Mobile web searches have grown five times over thepast two years. YouTube alone gets more than 400M mobile views a day, representing 13% of our daily views.

This means thatmore ad views will now come from smartphones and tablets. Suzie Reider, Head of Ad Sales, YouTube and Google Display

Revenue sourced directly and indirectly from linear TV advertising will be pursued to create scale, to sustain overallrevenue growth, and to defray the growing cost of securing quality, premium and super premium video content. As a

result, more aggressive monetization will drive the acute and existential need for analytical. Bill Lederer, CEO, Kantar Video


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SilverwoodIndustryRevenueEquaon

Page 31

Content

ProducedContent

Distributed

Content

Consumed

Technology

Disrupon

IndustryRevenue

+ + -

=

MorethanEver MorethanEver MorethanEver

Transiontosowarecannibalizingformerhigh-

margindedicatedhardware

Newcontentproduced

atfraconofprice

510yearsearlier

IPdistribuonshiing

billionsofdollarsof

technologybudgets


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1

3

Page 32


2

WhereistheGrowth?

ImpactofAccelerangTechnologyChange?


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ImpactofExternalAKodakMoment

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

11/1/2001:Kodak shareprice at $21.40

Additional Examples:

Apr 2004: Despiteongoing restructuring

efforts, Kodak isremoved from DJIA

after 74 years

From robust digital revenue growth, to our ability to

manage effectively the decline in our traditional filmbusiness, to fulfillment of our digital acquisitions

plan, our results are evidence we are building [. . .]

[a] stronger Kodak for the future.

Simply stated: our strategy is on course.

- Antonio M. Perez, COO, 2004 Annual Report

Kodak is now a thriving digital company,

- Antonio M. Perez, CEO, Q4 2005 EarningsAnnouncement

Share Price2001-2011

~95%

FY 2005FY 2010:Kodak reports loss

from continuingoperations

2010: Kodak suesApple and RIM forpatent infringement

We recognized already the need to

lower our cost structure and more

tightly focus our portfolio to align

with the new economic realities.- Antonio M. Perez, CEO, Q4 2008

Earnings Call

We continue to be highly

focused in completing our

transformation to a digital,

profitable and sustainable

Company.

- Antonio M. Perez, CEO,Q3 2011 Earnings Call

Sustained success in technology requires constant evolution

1/19/2012:Kodak files for

Chapter 11bankruptcy

2011: Kodak announces saleof image sensor business and

1,100 patents

11/1/2011:Kodak shareprice at $1.16


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EffectofSoware,ServiceTransion

Page 34

TakenfromQ42011AvidEarningsConferenceCall

Revenuegrowthslleludesyouanditisgoingtobefairlymodestnextyearandyettheresalotofposive

driversforthemediacreaonindustry.Canyouhelpusunderstandwhyitisthattop-linegrowthissllprovingsodifficulttoachieve?

-PaulKoster,JPMorgan

Aswetransionourmodeltofocusmoreonthemediaenterprisetofocusmoreonsowareandtofocus

moreonrecurringrevenueyouaregoingtoseeadampeningeffectIheareveryoneontheneedforgrowth.

Wearetakingafocusonhowwecanimproveourprofitabilitywithnogrowth

-GaryGreenfield,CEOAvid

$4B

LostRevenue

ImplicaonsofTransionforExisngRevenues

ProductsunlikelytoTransion

toSowareandServices

ProductslikelytoTransion

toSowareandServices

Whereareyou?

$12B

SilverwoodEsmates


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ADifferentSaleGoingForward

Page 35

Whichcategoryofcustomeristhemostimportant?

49% 47%

4%

0%

10%

20%

30%

40%

50%

60%

Engineering Operaon,Finance,IT,Other

Don'tKnow

32%

60%

7%

0%

10%

20%

30%

40%

50%

60%

70%

Engineering Operaon,Finance,IT,Other Don'tKnow

Today Next2-3Years

NoLongeraPredominantlyEngineering

DrivenPurchaseDecision

Engineeringinfluenceinpurchase

decisionmarginalized

(BigBroadcastSurveyofVendors)


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TransionRevenue,BusinessModel

Margin Impact: Transition to Software and Services

n Margin dollars from hardware sales to disappear unable to compete with largeIT vendorsn Transition to software model requires fundamental shift in business model:

engineering, sales (direct vs. channel), marketing, G&A

Revenue

Loss50%

Soware

Hardware

Purpose-BuiltSoluon IntegratedSoluon

Sales:$100,000

GrossMargin:$55,000Sales:$40,000

GrossMargin:$39,000

Sales:$10,000

GrossMargin:$2,000

Soware

Firmware

Hardware

IllustraveExample

EfficiencyGain


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DoyouhaveaHiddenSowareBusiness?

Page 37

DoesProfessionalServices,Hardware

driveenoughaddionalSoware,

Supportsalestojusfyitsexistence?

Professional

Services Hardware

Support

Installaon HardwareResale Integraon

2.0x5.0x+ 1.5x2.0x+0.5x1.0x0.2x0.3x

CanHardwareandSoware

elementsbeseparated?

Principalfocusoflargebuyers

strongmargins,intellectualproperty,

recurringrevenue

Lowvaluaonlowmargins,low

growth,requiressignificantscale

RevenueMulples

ProductPorolioSoware

Recurring StandardMaintenance Costandcommitmenttoprovide

ProfessionalServices,

HardwareSoware,Support

SaaS PerpetualLicense Shrink-Wrap

Specialized General-Purpose Customized


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TheValueofAcon

Page 38

Year1 Year2 Year3 Year1 Year2 Year3

3.0x5.0x

$100$110

$125

$80

10%

14%

0% 0%

50%50%

$20

$80

$30 $45

$80

1.0x1.2x

1.0x1.5x

$215.0$321.0

$125.0$187.5

$135.0$225.0

$80.0$96.0

Value Creation in Highlighting Software Component

n Software business should be profitable for maximum effect in separation provides valuation floor for businessn Moderate or no profitability has minimal impact on valuation of hardware

component of business

WithSeparaonofSowareOperaonsWithoutSeparaonofSowareOperaons

Profit

Contribuon

Soware

Revenue

Hardware

Revenue

IllustraveExample


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1

3

Page 39


2

WhereistheGrowth?


ConsolidaonConnues


Summary


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4%

20%

76%

18%27%

55%

0%

20%

40%

60%

80%

Over1,000+ 101-1000 1-100

IABM

Devoncro

VendorBreakdown:ConsolidaonInevitable

Page 40

MarketStudy

900vendors 300Members1600+Exhibitors 1500suppliers

20%ofVendorsResponsiblefor80%oftheIndustrysRevenue

300Vendors(Over$20Billion)

1,200Vendors(Lessthan$5Billion)

Source:IABM

VendorBreakdownbyEmployeeCounts


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SelectedM&ATransacons

Page 41

Current M&A Environment

Substantial volume ofdeals over past year consistent transaction flow

Wide range of revenuemultiples for transactions

Strong valuations forstrategic technologies

Mean 3.2x

Median 1.8x

High 11.2x

Low 0.2x

EV/Revenue

Source: Capital IQ, Thomson One, Press Releases, Industry Sources

Date Acquirer TargetEnterprise

ValueEV/Revenue

3/22/2012 NEC Convergys BSS $449.0 1.4x3/21/2012 XOR Media Seachange Broadcast NM NM3/15/2012 Avaya Radvision $175.0 2.2x3/15/2012 Cisco NDS $4,942.4 5.0x3/13/2012 Ericsson Technicolor Broadcast $24.9 0.2x2/7/2012 Corel Roxio NM NM2/7/2012 Ross Video FX-Motion Camera NM NM1/27/12 Intel Real Networks Assets $120.0 NM

1/6/2012 KIT digital Sezmi $27.0 1.4x12/22/2011 Motorola Mobility Setjam NM NM12/22/2011 Akamai Contendo $268.0 8.9x12/21/2011 Thoma Bravo Telestream NM NM12/14/2011 Court Square Encompass $500.0 NM

12/13/2011 ASG Software Atempo NM NM12/1/2011 Blackmagic Teranex NM NM10/31/2011 Adobe Auditude $120.0 NM10/20/2011 Cisco BNI Video $99.0 NM10/10/2011 Arris BigBand $53.0 0.6x10/10/2011 Rimage Qumu $51.8 5.0x

9/8/2011 Adobe Iridas $9.5 NM8/30/2011 DG Fastchannel EyeWonder $66.0 1.8x8/18/2011 HP Autonomy $10,462.7 11.2x8/15/2011 Google Motorola Mobility $8,984.2 0.7x7/20/2011 Orad IBIS $2.1 NM

6/16/2011 DG Fastchannel MediaMind $422.7 5.0x5/2/2011 Limelight Clickability $10.0 1.8x4/11/2011 Level 3 Global Crossing $2,904.0 1.1x4/11/2011 KIT Digital ioko365 $79.4 1.5x4/7/2011 Blinkx plc Burst Media $30.1 0.8x

3/21/2011 Polycom, Inc. Accordent $50.0 6.4x3/16/2011 KIT Digital Polymedia $38.6 1.7x3/15/2011 Carlyle Group The Foundry $120.0 5.0x


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M&APerspecvesLargeVendors

Greatsetofopportuniesinthisbusinessforstrategicconsolidaonsnotenoughpuresizeandheinanyofourmarketsfortheeconomicsofjustscalealonetomakemanyof

themmakesense...they[acquisions]gottobestrategicaswellandgottotakeyouinto

fastergrowrates,orbeermargins,orbeerspacesandhelpaccelerategrowth

HarrisMorris,GMBroadcastDivision

Clearlythisisanindustryforconsolidaon...ifyoulookattherelavesizeofthelargest

playersandthetailoftheremainingplayers...thisisjustthebeginningAlainAndreoli,CEO

"Fromourperspecveitisallaboutstrategicdevelopment,it'saboutaddressing

opportuniesunderstandingwherethebusinessisgoingandwheretherearestrategic

gapsoropportuniestocover

PatrickHarshman,CEO

[Omnibuswasanopportunity]toacceleratedevelopmenttoaddressafastgrowing

marketsector

StrathGoodship,CEO

QuotesadaptedfromIBCsession:DefiningtheMediaSupplyIndustry

Page 42


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M&AisaNaturalProgression

JoiningforceswithAdobeprovidesuswithanamazingopportunitytogetourtechnologyintomorepeopleshands

LinKaiserCEOandFounder,IRIDAS(Source:AdobePressRelease)

"ThisacquisionbyGrassValleyisgreatforPubliTronic'scustomersastheenreteaminApeldoorncannowenjoytheresourcesofatruemul-naonalcompany,completewith

deepknowledgeinvideoandservertechnologiesNow,together,ourtechnologiescan

bringrealcostandoperaonalbenefitstotheindustryonalargescale.

-HaroldVermeulen,FounderandManagingDirectorofPubliTronic.(Source:GrassValleyPressRelease)

ThisisanexcingmilestoneforourcompanyWeareextremelyhappytobepartoftheBlackmagicDesignteam.BlackmagicDesignsglobalreach,leadingedge

technologies,widelyrecognizedbrandname,strongsystemsandnetworkingexperse

andworldwidecustomerrelaonshipsmakeitanidealpartnerforTeranex.

-MikePoirier,GeneralManagerofTeranex(Source:BlackmagicDesignPressRelease)

Itsaterrificoutcomeforourcustomers,ouremployees,CiscoandourinvestorsWebuiltagreatcompany,butwewereatappingpointwhereourcustomersweretelling

usitwasmetoscale.

-ConradClemson,Co-FounderandCEOBNIVideo(Source:CEDMagazine,10/20/2011)

Page 43


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WhoaretheConsolidators?

Page 44

2021

TransaconAcvity(#ofdeals)inMediaTechnologySince2008(Source:SilverwoodPartners)

Private

EquityFirms

25 2521

RepresentaveTechnologyCompaniesandAssociatedAcquisionAcvityinSector


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ConsolidatorBreakdown:Strategic

Page 45

Broader

Technology

Large,

IndustryParcipants

Technologieswithbroadusecases,aligning

withinternalproduct

development

Businesseswithexisngcommercialrelaonshipandadjacencytoproductporolio

Technologiesonthecricalpathdemonstrablevisibilityin

commercializaon

OtherAcve,

IndustryParcipants

Adjacentvendors,alignmentonvisionofgrowingbusiness

Lookingforaddionalproductfunconality

Cricalmassofrevenue,strongrevenuegrowth

DealInterests

TransaconTypes

Allcash,cleandeal

Substanallycash,cleandealCreavestructureswitha

poronincash,butmajorityof

consideraoninformofequity

andconngentfuturepayments

Perfectinformaon:know

whoissellingandwhat

valuaonexpectaonsare


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RepresentaveAcquisions

Page 46

Perspecve:Videovs.Broadcast

$10+Billion

$14+Billion

NotableAcquisions($spent)inVideoTechnology

~$1Billion

~$15Billion

~$1.5Billion

AcquirerswillConnuetoBuyVideoTechnologieswithWiderApplicabilityBeyondBroadcast


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SelectedPrivateEquityPlaorms

Page 47

Mar.2011

Jan.2011

Apr.2011

Apr.2011Jan.2008

Mar.2009

Jul.2000

Jul.2008

Dec.2010Jan.2009

Mar.2010

Apr.2010

Feb.2011

Sep.2010

Apr.2010

Oct.2010 Aug.2011

Apr.2012?

Mar.2012

Dec.2011

Oct.2008


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PrivateEquity:Compeve,Aggressive

Private Equity Firms Advantaged by Market Conditions

n Private Equity firms able to leverage current market dynamics to outbid strategicacquirers for businesses with strong profitability

n Able to move rapidly: substantial deal experience, existing equity funds, long-standing lender relationships

Page 48

Retained

Equity

Cash

Equity

Debt 3.0x4.0x

3.0x4.0x

2.0x3.0x

Amount

Post-Closing

Ownership

25%-40%

60%-75%

Target

AnnualReturn

1x

2x

3x

4x

5x

6x

7x

8x

9x

10x

1x

2x

Prevailing

Rates

20%-30%

11x

Illustrave

Example:

Majority

Transacon

TransaconMulples

Revenue

EBITDA

EBITDA:

20%30%


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1

3

Page 49


2

WhereistheGrowth?


ConsolidaonConnues


Summary

5


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BusinessTransformaons

Page 50

Predominantly

Hardware

Predominantly

Soware

Soware-as-a-Service(SaaS)

WhyTransform? HowtoTransform?

ValuaonIncrease(ulmately)

OperaonalStreamlining StrategicClarity Respondtocustomerdemandimmediacyof

funconality

Decisiveaconrequired Challengingtoalterinstuonalmindset

Oentakessignificantinvestmentandme

Manymesrequiresdivesturesand

acquisions


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BeingPubliccanbeanAdvantage

Page 51

Evertz hopes TSX gives it a profile for growth- June 29, 2006 (Source: globeandmail.com)

Evertz could afford to fund its growth plans with the cash itwas generatingBut credibility had become a recurring issuefor Evertz as it tried to win new clients, such as the major U.S.telecom companies that plan to load TV signals on their phonelines...

Themarketwillfindyouaslongasyouareeitherlarge,havedemonstrable

growth,orastoryaligningwithmarketinterest

Business Insider: What's it like being a public company?

Jeremy Allaire:We often got asked, "Why are you goingpublic now?" There are a whole bunch of reasons. One is, I'vealways said we're trying to build a global independent companyand at some point that means becoming a public company.

I think the other big thing is that a large amount of our businessis with other public companies, and public companies doingbusiness with other public companies matters, there's acredibility and a transparency that's there that is very real.

I think having currency, both capital and equity currencies, is

valuable for investments or acquisitions. So those are a bunchof reasons and I think they're all quite valid.

Brightcove's CEO: This Is What's Great, And TerribleAbout Doing An IPO March 20, 2012

(Source: Business Insider) Opportunityforimmediatevalue

recognion

Currencyforgrowthinvestments

andacquisions

Providescustomersgreatercomfort

infinancialcapacity

Accesstolargeinstuonalinvestorsdearthofavailable

video-focusedinvestments


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CorporateGrowth:InfleconPoints

Page 52

Revenue

Time

PrincipalwaytoacceleratethroughinfleconsisM&A

Scaleproduct,

serviceofferings

Expandproductporoliofor

exisngcustomers

Expandmarkets

forexisng

products

Expandtoother

geographies


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MarketDynamicsareanOpportunity

Opportunitytoacquiretechnologiestoaccelerateproductdevelopment,beeralignwithmarket,andimproveposioningforgreaterappealto

largeinstuonalinvestors.

Broadertechnologycompanies

willconnuetobuymedia

technologyvendors

Publicmarketsarewelcoming

ofopportuniestoinvestin

videotechnology

Substanalinterest

fromPrivateEquitycommunity

LargeVendors

Smaller

VendorsOpportunitytoposionasamust-havestrategictechnology

acquisionforlargervendors.

All

VendorsOpportunitytotakeadvantageofongoingtechnologydisruponand

benefitfromchangingmarketdynamics.

Page 53


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References:IABM

Addionalinformaonisavailableat:www.theiabm.org/globalstudy

Page 54


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References:DevoncroPartners

The BBS is an annual demand-side study

of the global broadcast industry, which

enables readers to improve strategic

decision making, customer engagement,

marketing strategy, and sales execution.

More than 10,000 broadcast

professionals in 100+ countries

participated in the 2012 BBS, making it

the largest ever and most comprehensive

market study of the broadcast industry.

For information on receiving a copy of

the big broadcast survey, please

contact Joe Zaller

([email protected])

Devoncroft was formed by Joe Zaller, a

twenty year veteran of the digital media

industry. Mr. Zaller is a frequent speaker atindustry trade shows and events, and

publishes a widely-read blog on the

broadcast technology industry

(http://blog.devoncroft.com/).

Provider of market research and strategic

consulting services to a wide range of digital

media clients. The company publishes a

variety of syndicated market research reports

and has been retained for numerous custom

engagements by leading players in the

broadcast, cable/satellite/IPTV, digital media,

Pro-AV, private equity, and finance industries.

Page 55


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ImportantInformaon

P 56

The analysis and views expressed herein have been developed by Silverwood Partners LLC (Silverwood) or obtained from various third-parties.The material contained herein, while not guaranteed, is based on information that is believed to be reliable and accurate. This strategic industryanalysis (Strategic Analysis) is prepared for general circulation and is circulated for general information only. It is not and is not intended to be aResearch Report as defined by NASD Rule 2711 of the Financial Industry Regulatory Authority (FINRA) effective as of the date hereof or asamended. Specifically, this Strategic Analysis does not provide information reasonably sufficient upon which to base an investment decision as it does

not have regard to the particular investment objectives, financial situation and the needs of any person or entity who may receive this document.Silverwood does not assess for any particular investor the suitability of any particular investment or the potential value of any particular investment.None of the information contained herein constitutes a recommendation or a solicitation by Silverwood or a recommendation or solicitation that anyparticular investor should purchase or sell any particular security in any amount, or at all. Investors should seek financial advice regarding theappropriateness of investing in the securities of any company mentioned in this Strategic Analysis and should understand that statements regardingfuture prospects may not be realized. Past performance is not necessarily a guide to future performance. This Strategic Analysis is not intended toprovide tax, legal, or investment advice.

Neither the information nor any opinion expressed herein constitutes an offer, or an invitation to make an offer, to buy or sell any securities or anyoptions, futures or other derivatives related to such securities. Silverwood, its partners, members, officers, employees, contractors, referral sources ormembers of their families may have a long or short position in any securities of the companies mentioned in this Strategic Analysis or in relatedinvestments. As an investment bank, Silverwood may be actively seeking to be retained by, may actually be retained by or may have in the past beenretained by any of the companies mentioned in this Strategic Analysis. In addition, Silverwood personnel may have in the past provided services to

certain companies mentioned in this report when employed by other firms. Furthermore, consultants to or referral sources for Silverwood, or formeremployees of Silverwood with continuing compensation arrangements with Silverwood, may have, or may have clients with, positions in securitiesreferenced in this Strategic Analysis. For information on recent investment banking relationships between Silverwood and the companies mentionedin this Strategic Analysis, please contact: Chief Compliance Officer, Silverwood Partners LLC, Silverwood Farm Place, 32 Pleasant Street, Sherborn,MA 01770.

Silverwood does not (i) guarantee the accuracy, timeliness, completeness, or correct sequencing of the information contained herein, or (ii) warrantany results from the use of the information contained herein. This Strategic Analysis has been prepared as of the date indicated and may becomeunreliable because of subsequent market or economic circumstances.

IN NO EVENT WILL SILVERWOOD, ITS PARTNERS, MEMBERS, OFFICERS, EMPLOYEES, CONTRACTORS, REFERRAL SOURCES ANDRELATED PERSONS, OR OTHER PERSONS TRANSMITTING THIS STRATEGIC ANALYSIS BE LIABLE TO THE USER OR ANYONE ELSE FORANY CONSEQUENTIAL, INCIDENTAL, SPECIAL, OR INDIRECT DAMAGES (INCLUDING, BUT NOT LIMITED TO, LOST PROFITS, TRADINGLOSSES, INVESTMENT LOSSES AND DAMAGES THAT MAY RESULT FROM THE USE OF THIS STRATEGIC ANALYSIS OR FOR OMISSIONSOR INACCURACIES IN THIS STRATEGIC ANALYSIS) EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THIS DOCUMENT IS NOTA RESEARCH REPORT AS DEFINED BY NASD RULE 2711 OF FINRA. EFFECTIVE AS OF THE DATE HEREOF OR AS AMENDED. AS ACONDITION TO USING THIS STRATEGIC ANALYSIS, THE USER EXPRESSLY WAIVES ANY CLAIM THE USER MAY HAVE AGAINSTSILVERWOOD, OR ANY OTHER PERSON WITH RESPECT TO THIS STRATEGIC ANALYSIS.

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