IP Spotlight: Patents, Technology and M&A

Patents, Technology, and M&A

Rob has over 30 years of executive and entrepreneurial experience

in multiple technologies: Integrated circuit testing, industrial

process automation and control, communications software, security

software, and energy software and services. Rob has founded and

sold several companies and engaged in two IPOs. He was most

recently CEO of Evergreen Fuel Technologies, Inc. in the energy

sector. Rob is a broadly skilled strategic development professional

with a proven reputation for targeting, negotiating and developing

profitable ventures and a demonstrated ability to successfully

analyze an organization's critical business requirements, identify

deficiencies and opportunities, and develop innovative and cost-

effective solutions for enhancing competitiveness, increasing

revenues, and improving customer relationships.

Rob SchramSenior Vice President, Corum Group

Moderator

Software Patent Luminaries

Elon GasperVice President & Director of

Research, Corum Group

F. David LaRiviereManaging Partner, LaRiviere,

Grubman & Payne, LLP

Elon GasperVice President & Director of Research, Corum Group

Software entrepreneur and tech M&A IP specialist Elon Gasper’s own

inventions have driven M&A value and underpinned his experience on

the sell-side, buy-side and as an advisor and research director at the

Corum Group. He founded a software start-up, obtained venture funding

and was CEO until its acquisition by the leading public entertainment

software company, where he guided patent portfolio work while

supporting its growth through further acquisitions and eventual exit in an

acquisition by a larger public entity. Elon then helped start and grow a

number of other companies. His awards include a COMDEX Envision; a

Codie, the retail software 'Oscar‘; and eleven patents. He was a finalist

for the Fleugelman Award, the only personal achievement award given

by the Software Publishers Association, and has held faculty and staff

positions at Univ. of Washington, Mich. State, Cal. State, and others.

MS, Computer Science; BS, Biochemistry.

Guest Speaker

Patents as an Asset in M&A

• Patents now a business asset

• Increasingly driving midrange M&A

• Affecting all phases:

– Valuation

– Negotiation

– Due Diligence

• International increasingly important

• Costs

Software patents on the increase*

Source: TAEUS Corporation *US Patent apps claiming “Computer-readable medium”

01 02 03 04 05 06 07 08 09 10 11 12 13

Studies show most software firms

haven’t been getting patents

Sources: James Bessen (Boston University), Stuart Graham et al, NBER Patent Data Project, Crunchbase

24%

Pre-packaged Software

1996

20%

Computer Services & Software

1996

24%

Venture-backed Software Startups

2005

33%

Pre-packaged software

2006

24%

All Software Startups

2009

67%

Venture-backed Software Start-ups

2009

33%

All Funded Start-ups

2012

19%

E-commerce, Web, & Video Games

2012

Approaches to Value of Patents in M&A

• Study: having a patent assigned to the target

increases the deal value by $250,000 on

average

• Study: the quantity of patents in a portfolio is

secondary to the quality of those patents

• Net present value of established royalty stream

• Book value of patent (cost to date)

• Assign 25% of operating profits to the patents

• Compare to similar patents

Source: Antti Saari, Aalto University

Just part of the wireless-related arms race…

Source: PCMag, Verizon; c. 2012

11

Recent Software Patent Deals

HorizontalVertical ConsumerInternetInfrastructure

“IP is an increasingly valuable asset class in

business…”

- Kevin Rhodes, VP & Chief Intellectual Property Counsel for 3M.

“The corporate world is in the midst of a grand

shopping spree.”

– CNN Money, “Mergers and Acquisitions Boom” June, 2014

12

Public Markets

0%

5%

10%

15%

20%

25%

30% Weekly Percentage Change

NASDAQ S&P TECH Dow Jones

13

1H:2013 1H:2014

# of Transactions 1584 1811

# of Mega Deals 12 19

Largest Deal $24.8B $19.0B

Private Equity Deals 87 99

# VC backed Exits 351 360

% Cross Border Transactions 31% 33%

% of Startup Acquisitions 13% 11%

Average Life of Target 14 15

Corum Index

14

Mega Deals – 1H:2014

$19B

$3.1B

$3.2B

$3.2B

$2.9B

$2.4B

$2.3B

$2.0B

$5.3B

$3.0B

$4.9B

$3.5B

$2.6B

$1.7B

$1.6B

$1.3B

15


$19B

$3.1B

$3.2B

$3.2B

$2.9B

$2.4B

$2.3B

$2.0B

$5.3B

$3.0B

$4.9B

$3.5B

$2.6B

$1.7B

$1.6B

$1.3B

Sold to

Sector: Mobility

Target: WhatsApp

Acquirer: Facebook

Transaction Value: $19 billion

- Mobile messaging applications

enabling users to send and receive

group messages, photos and videos

and share locations.Patent Pending: Multimedia

transcoding method and system for mobile devices

16


$19B

$3.1B

$3.2B

$3.2B

$2.9B

$2.4B

$2.3B

$2.0B

$5.3B

$3.0B

$4.9B

$3.5B

$2.6B

$1.7B

$1.6B

$1.3B

Sold to

Sector: Energy

Target: Nest Labs

Acquirer: Google

Transaction Value: $3.2 Billion

- Wireless, sensor-based smart energy thermostats

that automatically adjusts temperature based on

user behavior and can be remotely controlled via

computers or smart phones.

- Last time Google bought a company that directly

related to its core business of search, display and

video advertising was mid-2011 purchase of

AdMeld.Patent : Thermostat user

interface

17

Patent Application Pendency: Years in Prosecution from Filing to Issuance

Source: Patentlyo

18

Aggregate Six Markets

1.50x

2.00x

2.50x

7.00x

8.00x

9.00x

10.00x

11.00x

12.00x

13.00x

14.00x

EV/SalesEV/EBITDA

Q4:12 Q1:13 Q2:13 Q3:13 Q4:13 Q1:14 Q2:14

EV/EBITDA 9.91x 10.79x 10.64x 11.65x 13.20x 12.97x 13.11

EV/S 1.78x 1.92x 1.98x 2.15x 2.39x 2.31x 2.40

19

Recent Software Patent Deals

HorizontalVertical ConsumerInternetInfrastructure

“IP is an increasingly valuable asset class in

business…”

- Kevin Rhodes, VP & Chief Intellectual Property Counsel for 3M.

“The corporate world is in the midst of a grand

shopping spree.”

– CNN Money, “Mergers and Acquisitions Boom” June, 2014

20

Internet MarketPublic Valuation Multiples

1.50 x

1.70 x

1.90 x

2.10 x

2.30 x

2.50 x

2.70 x

6.00 x

8.00 x

10.00 x

12.00 x

14.00 x

16.00 x

18.00 x

EV/SalesEV/EBITDA

Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14

EV/EBITDA 13.74 x 12.24 x 13.16 x 13.37 x 13.31 x 14.17 x 13.63 x 14.92 x 14.31 x 13.76 x 12.36 x 12.94 x 15.61 x

EV/S 2.02 x 1.84 x 2.04 x 1.93 x 2.29 x 2.46 x 2.31 x 2.34 x 2.21 x 2.06 x 2.07 x 2.08 x 2.07 x

21

Deal Spotlight

1.50 x

1.70 x

1.90 x

2.10 x

2.30 x

2.50 x

2.70 x

6.00 x

7.00 x

8.00 x

9.00 x

10.00 x

11.00 x

12.00 x

13.00 x

14.00 x

15.00 x

16.00 x

EV/SalesEV/EBITDA

Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14



Internet Market

Sold to

Target: Destination Rewards

Acquirer: Deluxe

Transaction Value: $20.1 million

- Patented, innovative rewards and loyalty solution

will enhance Deluxe’s suite of Customer

Lifecycle Management offerings for financial

institutions. Patent : System and method for providing a discount

22

Infrastructure Software MarketPublic Valuation Multiples

2.00 x

2.05 x

2.10 x

2.15 x

2.20 x

2.25 x

2.30 x

2.35 x

2.40 x

2.45 x

2.50 x

6.00 x

7.00 x

8.00 x

9.00 x

10.00 x

11.00 x

12.00 x

13.00 x

14.00 x

15.00 x

16.00 x

EV/SalesEV/EBITDA




23

Subsector Sales EBITDA Examples

Infrastructure

Communications 1.93x 12.00x

Network

Management3.71x 15.09x

Storage 1.35x 8.35x

Development

Tools2.93x 9.98x

Security 3.73x 16.73x

Virtualization 3.93x 25.80x

Legacy/SOA 2.90x 16.14x

Systems Mgmt. 2.44x 8.57x

Infrastructure Software Valuations

24

Infrastructure Software Market

Deal Spotlight

2.00 x

2.05 x

2.10 x

2.15 x

2.20 x

2.25 x

2.30 x

2.35 x

2.40 x

2.45 x

2.50 x

6.00 x

7.00 x

8.00 x

9.00 x

10.00 x

11.00 x

12.00 x

13.00 x

14.00 x

15.00 x

EV/SalesEV/EBITDA




Sold to

Sector: Virtualization

Target: V3 Systems

Acquirer: Sphere3D

Transaction Value: 9.7 million

- Desktop virtualization appliances & management

software that enables businesses' IT administrators to

virtualize desktops and manage local, cloud-hosted or

hybrid virtual desktop deployments.

- Quickly adds breadth to product portfolio, and fast tracks

transition to commercial operations with accretive

revenue from day one.

Patent: Virtual machine migration into the cloud

25

Horizontal Application Software MarketPublic Valuation Multiples

1.50 x

2.00 x

2.50 x

3.00 x

3.50 x

4.00 x

4.50 x

6.00 x

8.00 x

10.00 x

12.00 x

14.00 x

16.00 x

18.00 x

20.00 x

22.00 x

EV/SalesEV/EBITDA




26

1.50 x

2.00 x

2.50 x

3.00 x

3.50 x

4.00 x

4.50 x

6.00 x

8.00 x

10.00 x

12.00 x

14.00 x

16.00 x

18.00 x

20.00 x

22.00 x

EV/SalesEV/EBITDA




Sold to

Sector: CRM

Target: Kxen

Acquirer: SAP

Transaction Value: Estimated at $40 Million

- Addition of KXEN adds predictive capabilities for the

extensive customer base of cloud and on-premise

solutions from SAP.

- Predictive technology enhances core SAP applications

for managing operations, customer relationships, supply

chains, risk and fraud.

Horizontal Application Software MarketDeal Spotlight

Patent: Adaptive marketing using insight driven customer

interaction

27

1.50 x

2.00 x

2.50 x

3.00 x

3.50 x

4.00 x

4.50 x

6.00 x

8.00 x

10.00 x

12.00 x

14.00 x

16.00 x

18.00 x

20.00 x

22.00 x

EV/SalesEV/EBITDA




Sold to

Sector: Mobility

Target: Motorola Solutions (Enterprise Business)

Acquirer: Zebra Technologies Corporation

Transaction Value: $3.45 billion

- 1.4x revenue multiple

- Mobile phones, smart phones and wireless

infrastructure hardware and software.

Horizontal Application Software MarketDeal Spotlight

Patent: Mobility in a wireless enterprise network

28

Vertical Application Software MarketPublic Valuation Multiples

1.50 x

1.70 x

1.90 x

2.10 x

2.30 x

2.50 x

2.70 x

2.90 x

3.10 x

3.30 x

6.00 x

7.00 x

8.00 x

9.00 x

10.00 x

11.00 x

12.00 x

13.00 x

14.00 x

15.00 x

16.00 x

EV/SalesEV/EBITDA




29

Subsector Sales EBITDA Examples

A/E/C 3.20x 15.47x

Government 1.20x 8.09x

Healthcare 4.16x 22.31x

Financial Services 3.82x 13.33x

Energy &

Environment3.15x 11.59x

Vertical Other 1.77x 12.54x

Vertical Application Software Market

30

Vertical Application Software MarketDeal Spotlight

1.50 x

1.70 x

1.90 x

2.10 x

2.30 x

2.50 x

2.70 x

2.90 x

3.10 x

3.30 x

6.00 x

7.00 x

8.00 x

9.00 x

10.00 x

11.00 x

12.00 x

13.00 x

14.00 x

15.00 x

16.00 x

EV/SalesEV/EBITDA




Sold to

Sector: Healthcare Payment Cards

Target: Evolution1

Acquirer: WEX


- Pre-paid healthcare and commuter benefits

cards and related transaction processing

software.

- Enables WEX to address multiple aspects of the

healthcare payment system, expanding market

while building on growth in fleet & travel space.

Patent: System and method for processing flexible spending

account transactions

31

1.00 x

1.20 x

1.40 x

1.60 x

1.80 x

2.00 x

2.20 x

2.40 x

2.60 x

2.80 x

6.00 x

6.50 x

7.00 x

7.50 x

8.00 x

8.50 x

9.00 x

9.50 x

10.00 x

EV/SalesEV/EBITDA




Sold to

Sector: Education

Target: Lexia Learning Systems

Acquirer: Rosetta Stone


- Lexia’s reading technology brings

Rosetta new expertise to plunge

deeper into the EdTech industry.

Vertical Application Software MarketDeal Spotlight

Patent: Methods and systems for education and

cognitive-skills training

32

Consumer Application Software MarketPublic Valuation Multiples

1.00 x

1.20 x

1.40 x

1.60 x

1.80 x

2.00 x

2.20 x

2.40 x

2.60 x

2.80 x

6.00 x

7.00 x

8.00 x

9.00 x

10.00 x

11.00 x

12.00 x

EV/SalesEV/EBITDA




33

1.00 x

1.20 x

1.40 x

1.60 x

1.80 x

2.00 x

2.20 x

2.40 x

2.60 x

2.80 x

6.00 x

6.50 x

7.00 x

7.50 x

8.00 x

8.50 x

9.00 x

9.50 x

10.00 x

EV/SalesEV/EBITDA




Sold to

Sector: Video Games

Target: Rational Group Ltd (dba PokerStars.co) [Isle of Man]

Acquirer: Amaya Gaming Group [Canada]

Transaction Value: $4.9 Billion

- Increases revenue eightfold and gains benefit of US brand

recognition and casino partnerships for its existing online

gaming and casino supply business.

- Strengthens core B2B operations with a consumer online

powerhouse that creates a scalable global platform for

growth.

Deal Spotlight

Consumer Application Software Market

Patent: Computer gaming device and method for

computer gaming

Elon GasperVice President & Director of Research, Corum Group

Software entrepreneur and tech M&A IP specialist Elon Gasper’s own

inventions have driven M&A value and underpinned his experience on

the sell-side, buy-side and as an advisor and research director at the

Corum Group. He founded a software start-up, obtained venture funding

and was CEO until its acquisition by the leading public entertainment

software company, where he guided patent portfolio work while

supporting its growth through further acquisitions and eventual exit in an

acquisition by a larger public entity. Elon then helped start and grow a

number of other companies. His awards include a COMDEX Envision; a

Codie, the retail software 'Oscar‘; and eleven patents. He was a finalist

for the Fleugelman Award, the only personal achievement award given

by the Software Publishers Association, and has held faculty and staff

positions at Univ. of Washington, Mich. State, Cal. State, and others.

MS, Computer Science; BS, Biochemistry.

Guest Speaker

Provisional Application:

Business considerations

Consider a single provisional filing due to:

• It is faster and cheaper to get than a full patent

• It will hold a place in line for a year while you

proceed

• It reduces risk of innovation unprotected

• It allows to control the costs

• It lets you focus on the growth and exit preparation

for your business

F. David LaRiviereManaging Partner, LaRiviere, Grubman & Payne, LLP

F. David La Riviere is a managing partner of the law firm LaRiviere,

Grubman & Payne LLC, a full-service intellectual property law firm on

the legal cutting edge of converging technologies. Prior to his time at

LGP, Dave served at IBM, HP, Tomy and other technology firms as both

an attorney and engineer. He is a past chair of the Intellectual Property

Section of the State Bar of California, and consults and advises clients

on all phases of intellectual property matters, including domestic and

foreign licensing, validity and infringement opinions; due diligence

investigations and reports; technology transfer, disclosure agreements

and employer/employee rights and obligations; litigation support,

including dispute settlement and arbitration; and preparation, filing and

prosecution of applications for domestic and foreign patents and

trademark registrations. He holds a J.D. from the University of Santa

Clara School of Law, and a B.S.E.E. from Stanford University.

Guest Speaker

Legal protection of intellectual property

Trademarks Copyright Trade Secrets Patents

Provisional Application:

Legal considerations

• Defines, describes & prepares claims structure

• Holds filing “priority”/place in line for 1 year

• Does not itself result in a patent, but starts the

process

• Can take a number of forms

• Assignable like other IP rights

A) Owning a patentable technology

• Provisional application also serves to define your trade secret technology

• If already on the market – use trademark registration protection

B) Owning a patent application in process

• Establish 3 levels of claims strategies:

– broadest possible claim tree, mid-level claims tree, a “picture” claim

• File an RCE / CIP

C) Owning an issued patent

• Follow the issued patents with applications on improvements, other embodiments,

additional uses and the like to build a patent portfolio

Legal protection of intellectual property

Q&A

We welcome your questions!

Use Q&A window on right side

Submit to queue at any time

Ask “all panelists” – see “ask” option above text-entry box

Q&A

Elon GasperVice President & Director of

Research, Corum Group

F. David LaRiviereManaging Partner, LaRiviere,

Grubman & Payne, LLP

Contact Us

For further information or copies of today’s

presentation:

Visit www.wfs.com

-or-

Email

Rob Schram: [email protected]