Soup to Nuts

Seminar Series

May 19, 2001

Presenter: Brian Kasser, Principal, Software Investment Banking Practice

Founded in Q4 1998 by Thom Weisel, former CEO of Montgomery Securities for 27 years, and
officially opened doors for business February 1999

Capital raised:

1999: $16B

2000: $28B

$ in M&A advisory transactions:

1999: $ 7B

Annual revenue:

2000: $492MM

810 employees at 5/19/01

Offices in San Francisco, Menlo Park, New York, Boston and London

1999: $186MM

2000: $ 76B

Focused exclusively on investment themes transforming the economy & targeting the high
quality growth companies
Merchant banking approach combining research, underwriting, M&A advisory and private equity
investment activities
Combines deep domain expertise with bulge bracket execution capabilities

Thomas Weisel Partners is the Leading Investment Bank

Exclusively Focused on Emerging Growth
2

Table of Contents

I.

IPO Process Overview

II.

IPO Market Overview

III.

Overview of Thomas Weisel Partners

IPO Process Overview

IPO Process Overview

Select the Team

Draft a Document / Conduct Due Diligence (Bankers & Research)

File Registration Statement with the SEC

Marketing (Roadshow)

Pricing / Trading

Characteristics of Companies that are Ready for an IPO

Today Institutional Investors are evaluating potential technology IPOs
based on the following metrics / attributes:

Quarterly revenue run rate greater than $10 million and attractive sequential growth

Visibility (2 quarters out)

Profitability ( 2 quarters after filing)

Market position (first mover advantage market leaders)

Stable customers (Global 1000)

Solution sold at sizable average selling prices (ASP)

Proven business model

Strong strategic channel partners

Reasonable mix between license / service revenue

Reasonable mix between direct / indirect sales channels

Strong board representation

Well-recognized investors

Management (seasoned / experienced)

6

Identifying and Selecting Investment Banks for an IPO

Full-Service Investment Bank

Strong Research Capability with Domain Expertise and Active Approach Names
(Publishing) Dialogue with both Sales Force and Institutions
Focused and Active Sales and Trading within the Companys Sector
Experienced Investment Banking Professionals with Sector Wide Knowledge and Advisory
Capabilities

Reputation and Strength of Firm

Fit and Comfort with the Firm

Landscape of the Leading Investment Banks (Unbiased)

Strong
Execution

Goldman Sachs
Merrill Lynch

Morgan Stanley
CS First Boston DLJ
Deutsche Bank Alex. Brown
Fleet Robertson

Salomon Smith Barney

UBS

J.P. Morgan Chase

SG Cowen

Banc of America
Piper Jaffray

First Union

RBC DRW
William Blair

Limited
Execution

Wit Soundview

Broad/
Diluted
Focus

Emerging
Growth
Focus
8

Timing, Participants and Tasks of the IPO Process

Time Frame
Key
Participants

Core Tasks

Drafting / Due
Diligence

SEC Review
Period

Marketing /
(Roadshow)

Weeks 1-4

Weeks 5 10

Weeks 11 12

Week 12

Beyond

Management
Bankers
Research
Attorneys
Accountants

Management
Bankers
Attorneys
Syndicate

Management
Inst. Investors
Bankers
Syndicate
Sales
Research

Inst. Investors
Syndicate
Attorneys

Management
Inst. Investors
Bankers
Research
Sales
Trading

Organizational
Meeting

Prepare
Roadshow
Presentation

Presentation to
Underwriters
Salesforces

Bring Down Due

Diligence

Thorough
Research
Coverage

Respond to SEC
Comments

One-on-ones
with Institutions

Print
Preliminary
Prospectuses

Group
Presentations

Draft Registration
Statement
Market Positioning
Established
Financial/
Customer Due
Diligence
Commitment
Committee
Approval
File Registration
Statement

Pricing

Price and Close

After Market
Support

Strong Sales
Support
Strong Trading
Support
Formulate M&A
Strategy
Investor
Relations
MiniRoadshows

Proceeds of the Offering

Gross Proceeds:

The total offering size. Shares Offered * Expected Price

Gross Spread:

The percentage of the gross proceeds paid to underwriters to cover

management fees,selling commissions and underwriting
concessions. Almost always 7% on IPOs; less on follow-ons
(usually negotiable)

Offering Expenses:

Expenses of the offering borne by the company. Typically

accounting and legal fees, filing fees and printing costs.

Net Proceeds:

Gross Proceeds - Gross Spread - Offering Expenses

Example:
Gross Proceeds -- 5.0 million shares issued X

$10.00/share expected price

$50.0 million

Less: Gross Spread @ 7% --$10.00 X .07 = $0.70 X 5.0 million shares

$ 3.5 million

Less: Offering Expenses ---$700,000

Equals: Net Proceeds

.7 million

$45.8 million

10

Mechanics of an IPO Valuation

Some Form of Public Comparable Company Analysis: Price-to-Revenue, Price-toEarnings, Combined with a Discounted Cash Flow
Pricing an Art Not a Science (Within Accepted Metrics)

Aftermarket Demand and Performance

Majority of Shares Still Held by Founders and Existing Investors

Market Ultimately Prices the Deal Based Upon Demand Characteristics

Post Offering, Valuation Fluctuates Based on:

Operational Progress and Announcements

Meeting Street Expectations Quarter After Quarter

Research Coverage and Visibility

Trading Volume and Liquidity

11

Variables of an IPO Valuation

Based on comparable analysis, the multiple at which the investment
banks believe a company will trade in the public markets.

Trading Multiple:

IPO Discount:

IPO Multiple:

Post Money Equity Value:

The equity value of the company at an assumed IPO price.

Post Deal Shares Outstanding * IPO Price

Pre-Money Equity Value:

Post-Money Equity Value - Offering Size

Primary Shares:

New Shares sold by the company

Secondary Shares:

Existing Shares Sold by Insiders (Typically Not Applicable

for an IPO)

The amount by which the investment bank discount the trading

multiple to calculate the IPO Multiple. Typically, IPOs are priced such
that the stock price is expected to appreciate 15%.
The multiple at which a company is taken public.
Trading Multiple/ (1 + IPO Discount)

12

Typical Stock Splits Prior to an IPO

Prior to going public, companies will usually effect a stock split or reverse stock split.

This is done to manipulate the price range of the common stock. To get it into a
reasonable filing range (Typically low to mid teens)

A stock split does not change the companys capitalization just the number of shares
outstanding and consequently the earnings per share and per share price.

13

IPO Market Overview

Overview of the Current Economy

The slowing U.S. economy has resulted in a reduction of capital spending by

enterprises, especially on IT equipment and software

The reduction in IT equipment and software spending has resulted in weak financial
performance for technology companies and significant stock price declines

The combination of a slowing U.S. economy and significant valuation adjustments

has all but dried up the IPO market for early-stage emerging growth companies

Investors have returned to historical less aggressive metrics to evaluate public

technology companies and initial public offerings
Companies architected for the investor environment of 1999 and 2000 must
be restructured
No more top line growth at any cost mentality
Earnings matter!!!

15

150

100

50
Apr-99

Apr-98

Apr-97

Apr-96

Apr-95

Apr-94

Apr-93

Apr-92

Apr-91

Apr-01

200

Mar-01

250
Apr-00

Siebel Historical P/E Multiple

Nov-00

Jul-00

Mar-00

Nov-99

Jul-99

Mar-99

Nov-98

Jul-98

Mar-98

Nov-97

Jul-97

Mar-97

Return to Historical Valuations

Oracle Historical P/E Multiple

120

100
80

60

40

20

16

IPO Market Overview

Monthly Initial Public Offerings: 1996 to Present

Number of
Transactions

$ Amount Raised
($ in Billions)

1996

1997

1998

1999

2000

2001 (a)

January
February
March
April
May
June
July
August
September
October
November
December

21
54
56
47
71
77
44
46
45
82
65
38

23
41
31
18
30
54
47
38
41
64
77
32

11
37
33
35
40
49
39
16
1
3
11
14

10
31
20
26
45
54
53
27
41
52
54
38

18
48
53
35
24
35
48
63
27
26
20
9

3
7
8
4
2

Total
Average/month

646
54

496
41

289
24

451
38

406
34

24
5

1996

1997

1998

1999

2000

2001 (a)

January
February
March
April
May
June
July
August
September
October
November
December

$1.3
2.7
4.0
6.8
6.2
5.4
2.5
2.4
2.8
6.8
5.3
2.0

$1.3
2.7
1.6
1.3
3.5
5.5
3.8
2.8
3.6
6.1
8.2
2.0

$0.8
2.5
2.7
3.9
3.9
4.8
3.8
1.3
0.1
5.1
3.7
3.1

$0.9
4.6
4.4
1.9
7.9
5.4
11.2
2.6
3.4
7.1
17.1
4.5

$4.0
8.5
14.4
15.9
2.3
10.9
10.8
6.4
5.1
8.7
6.5
2.8

$0.2
3.8
4.2
2.2
0.1

Total
Average/month

$48.1
4.0

$42.3
3.5

$35.8
3.0

$71.1
5.9

$96.4
8.0

$10.4
2.1

17

IPO Market Overview

Pricing Trends in IPOs
The Big IPO Party...

Initial Public Offerings

100%

80%

60%

40%

May-01

Mar-01

Jan-01

Nov-00

Sep-00

Jul-00

May-00

Mar-00

Jan-00

Nov-99

Sep-99

Jul-99

May-99

Mar-99

Jan-99

Nov-98

Sep-98

Jul-98

0%

May-98

20%

..And The
Morning Hangover

% Priced Below Filing Range

% Priced Within Filing Range (a)
% Priced Above Filing Range

18

IPO Market Overview

After Market Performance of IPOs that priced in 2001, 2000, and 1999
2001 IPOs: After-Market Performance
50.0%

42.4%

40.0%

32.6%

30.0%

25.0%

20.0%

22.9%

16.3%

10.0%
0.0%
Jan

(10.0%)

Feb

Mar

Apr

May

YTD

(20.0%)
(23.1%)

(30.0%)

2000 IPOs: After-Market Performance

60.0%
38.2%

40.0%
20.0%

13.5%

(1.6%)

(3.6%)Jan

Feb

(1.9%)

Mar

2.1%

Apr

May

Jun

(11.7%)

Jul

Aug

Sept

(14.7%)

(56.8%)

Dec

(10.7%)

YTD
(15.5%)

(30.5%)

(49.5%)

(57.5%)

(62.1%)

Nov

(15.0%)
(30.3%)

(37.1%)
(47.4%)

(3.0%)Oct

(17.3%)

(24.6%)

(40.0%)
(60.0%)

36.4%

13.0%
0.2%

0.0%
(20.0%)

37.8%

(80.0%)

1999 IPOs: After-Market Performance

400.0%

354.8%

350.0%

250.0%

292.6%

281.6%

300.0%

195.4%

184.2%

153.2%

150.0%

108.5%

100.0%

98.2%

79.0%
38.1%

51.7%

31.9% 26.3%

8.2%

(100.0%)

Jan

Feb

Mar

(42.3%)
(42.9%)

Apr

22.0%

21.2%

May

128.9%

82.7%

10.0%

11.7%

Jul

Aug

0.0%
(50.0%)

234.8%

224.3%

222.0%

200.0%

50.0%

317.1%

305.7%

Jun

(31.2%)

19.1%

8.7%
(2.8%)

Sept(21.7%)

Oct
(21.2%)
(34.5%)

(9.9%)
Nov(21.0%)

Dec

YTD (8.7%)

(46.2%)
(53.8%)

19

Overview of Thomas Weisel Partners

Overview of Thomas Weisel Partners

Strategic Positioning

Business Momentum

Management Team

Global Reach

Focused exclusively on investment themes transforming the economy

Target selected growth industries and highest quality companies
Merchant banking approach combining traditional institutional brokerage with significant
private equity investment activities
Comprehensive banking services for growth companies including equity underwriting,
convertible debt, private placements, M&A advisory and private client services
Founded in Q4 1998, officially opened doors for business February 1999
810 employees, expected to increase to over 900 by end of 2001
$40.4 billion in equity capital raised
$85.7 billion in M&A advisory transaction volume announced/completed
Thom Weisel, CEO of Montgomery Securities for 27 years
At Montgomery, Thom and other founders supervised an organization that in the 1990s
raised $100 billion in 988 equity offerings and executed 385 M&A transactions representing
$100 billion in value
Other senior executives with 20+ years experience at Merrill Lynch, Credit Suisse First
Boston, Salomon Smith Barney, Alex. Brown and others
San Francisco: Institutional Brokerage, Research, Corporate Finance, Private Client Dept. &
Private Equity
New York: Research, Private Client Dept. & Corporate Finance
Boston: Institutional Brokerage & Corporate Finance
London: Institutional Brokerage & Corporate Finance

Thomas Weisel Partners is the Leading Investment Bank

Exclusively Focused on Emerging Growth
21

Overview of Thomas Weisel Partners

Thomas Weisel Partners Status Report
IPOs and Follow-ons Completed

156 transactions
$40.4 billion raised
18 lead managed offerings

IPOs and Follow-ons Pending

14 transactions filed/announced
$1.4 billion filed/announced
2 lead-managed offerings

Mergers and Acquisitions

68 transactions completed/announced
42 transactions in backlog
$85.5 billion in completed transactions
$178 million announced

Private Placements

25 transactions completed
15 transactions in process
$1.4 billion raised

Convertibles

8 transactions completed
$3.1 billion raised

Dollars ($mm)
160

Brokerage
$136.3

Investment Banking

140

$132.1

$134.0

$126.5

120
$97.6

100

$80.9

80
60

$48.5

40
20

$31.5

$8.5

0
Q1 1999

Q2

Q3

Q4

Q1 2000

Q2

Q3

Q4

Q1 2001

As of April 9, 2001
IPOs and follow-ons completed include over-allotment and convertibles do not include over-allotment

22

Overview of Thomas Weisel Partners

Comprehensive Services Across the Entire Lifecycle of Todays Emerging Growth Companies

Public

Private
M&A Advisory

Stage of Development

Research, Sales & Trading

IPO

Capital Raisings

Private Client Services

Private Placements

Late Stage Private Equity (TWCP)

Venture Capital (TWVP)

Company Life Span

23

Overview of Thomas Weisel Partners

Thomas Weisel Partners Equity Underwriting Expertise
Experience

20+ years experience in investment banking

Completed over 156 financings in Thomas Weisel Partners short history
Focused exclusively on emerging growth companies
Raised over $40 billion in equity financing since inception

Dedicated & Integrated Team

Deep relationships with strategic and institutional investors

Understanding of the strategic investor landscape
Highly integrated with M&A and Equity Research teams

Track Record of Success

Experience in managing and completing IPOs and secondary offerings

18 lead managed offerings completed
Deliver size and valuation objectives for clients

24

Overview of Thomas Weisel Partners

Thomas Weisel Partners Equity Expertise

25

Overview of Thomas Weisel Partners

Thomas Weisel Partners M&A Advisory Expertise
Experience

Average of 15 years experience in mergers and acquisitions advisory

Blend of bulge bracket, boutique and growth-oriented M&A experience
Led by two of the industrys most respected M&A professionals

Mark Shafir -- former Head of Global Technology Investment Banking at Merrill Lynch
-- advised Cisco on more than 10 transactions
-- advised SDL on its $41 billion sale to JDS Uniphase

Bob Kitts

-- former Managing Director in the M&A Group at Morgan Stanley

Dedicated & Integrated Team

Deep understanding of the growth sector M&A landscape
Highly integrated with Investment Banking and Equity Research teams
Track Record of Success

Experience in managing and completing M&A transactions

68 transactions completed/announced

26

M&A Environment & TWP Capabilities

Strategic US Advisory Rankings: 2001 YTD Ranked by Dollar Volume
M&A Technology Sectors

M&A All Sectors

Rank

Advisor
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25

Goldman Sachs & Co

Credit Suisse First Boston
Morgan Stanley
Merrill Lynch & Co Inc
UBS Warburg
JP Morgan
Salomon Smith Barney
Lehman Brothers
Dresdner Kleinwort Wasserstein
Greenhill & Co, LLC
Bear Stearns & Co Inc
Deutsche Bank AG
Touchstone Securities Ltd
Daniels & Associates Inc
Keefe Bruyette & Woods Inc
Petrie Parkman & Co Inc
FleetBoston Financial Corp
ABN AMRO
Waller Capital
Rothschild
Georgeson Shareholder
BMO Nesbitt Burns Inc
Lazard
Thomas Weisel Partners LLC
Societe Generale

# of
Deals
55
76
43
29
17
42
46
33
7
4
26
20
1
9
15
2
11
2
1
2
1
2
7
4
7

Trans. Val.
($MM)
$85,034
76,147
72,720
60,359
28,993
26,498
25,372
19,574
18,608
13,333
9,467
7,809
4,929
4,061
4,043
2,648
2,488
2,225
2,215
2,033
2,015
1,909
1,707
1,682
1,573

Rank

Advisor
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25

Goldman Sachs & Co

JP Morgan
Merrill Lynch & Co Inc
Credit Suisse First Boston
Morgan Stanley
Salomon Smith Barney
Daniels & Associates Inc
Waller Capital
FleetBoston Financial Corp
Thomas Weisel Partners LLC
Societe Generale
Broadview
Lehman Brothers
Wit Soundview Group Inc
RBC Dominion Securities
Dresdner Kleinwort Wasserstein
Deutsche Bank AG
Bear Stearns & Co Inc
US Bancorp
Updata Capital Inc
UBS Warburg
CIBC World Markets
Houlihan Lokey Howard & Zukin
Banc of America Securities LLC
Alliant Partners

(1)

# of
Deals
20
21
8
33
16
18
7
1
7
3
6
9
15
3
1
2
10
9
5
6
7
7
5
4
3

Trans. Val.
($MM)
$18,964
15,807
13,724
9,816
7,814
6,220
4,061
2,215
2,092
1,682
1,573
1,390
1,316
1,062
1,023
1,018
922
918
710
691
574
356
184
151
133

(1) Technology Includes SDC Tech Industries (e.g. Biotechnology, Computer Equipment, Communications, Electronics, Robotics, etc
Transactions counted in the period in which they are announced. Excludes spinoffs, buybacks & withdrawn deals
Transactions with undisclosed values are included in the deal count but do not contribute to the Txn Value Total
Source: Securities Data Corp. 4/4/01 - Transaction Values are equivalent to SDCs rank values.

27

Overview of Thomas Weisel Partners

Thomas Weisel Partners Private Placement Expertise
Experience

17 years experience in dedicated private equity effort

Completed over 100 financings at Montgomery Securities during the 1990s
Focus on a broad set of growth company industry groups
Raised over $3 billion in private equity in the 1990s

Dedicated & Integrated Team

Private equity team focused solely on the private equity placement market
Deep relationships with private equity investors
Understanding of the strategic investor landscape
Highly integrated with Investment Banking, M&A and Equity Research teams

Track Record of Success

Experience in managing and completing private placements

Completion in 8 to 14 weeks
Deliver size and valuation objectives for clients
Realize liquidity objectives through public offering or sale within 24 months

28

Overview of Thomas Weisel Partners

Thomas Weisel Partners Private Placement Transactions

29

Overview of Thomas Weisel Partners

Thomas Weisel Partners Private Placement Transactions

30

Overview of Thomas Weisel Partners

Thomas Weisel Partners Private Equity Funds
Fund

Thomas Weisel Capital

Partners (TWCP)

Tailwind Capital
Partners

TWP Global Growth

Partners
(GGP)

Size

$1.3B

$50mm

$500mm

Close Date

Fund Description

December 1999

Mid- to late-stage private

equity fund focusing on New
Economy Companies

July 1999 &

March 2000

Q4 2000

Thomas Weisel Venture

Partners (TWVP)

$260mm

Q4 2000

TWCP Europe

$500mm

2001

Manager
Alan Menkes
Former Partner Hicks, Muse, Tate, &
Furst

Venture fund capitalized by

TWP employees

Andy Sessions
Former General Partner Technology
Crossover Ventures
Former Senior Managing Director
Montgomery Securities

Fund of funds - investing in

a portfolio of premier venture
and private equity funds
focused on growth company
investing

Derek Lemke
Former Head of Private Equity
Montgomery Securities

Early stage venture funding

Andy Sessions
Former General Partner Technology
Crossover Ventures, and
Former Senior Managing Director
Montgomery Securities
David Crowder
Former Senior Managing Director
Montgomery Securities

Growth company investing in

Europe

Thomas Nilsson
Previously with Investor AB
31

Overview of Thomas Weisel Partners

Thomas Weisel Capital Partners, L.P.
Technology
Services

$1,311,503,386

Media & Communications

Software & Internet Infrastructure

Healthcare
Technology

Over $700 million committed to 28 leading companies on the cutting edge of change in software and internet
infrastructure, technology services, media & communications, communications equipment and healthcare technology.
32

Overview of Thomas Weisel Partners

Private Client Services

Thomas Weisel Partners Private Client Services strives to preserve the capital
base of clients through wealth diversification and asset allocation

Management of
cash flow and
other short-term
capital needs

Corporate Cash
Management

Investment
Management
Consulting

Comprehensive
asset allocation and
diversification

Corporate
Services

Brokerage services
provided to
friends of the
deal; execution of
restricted security
transactions

Brokerage
Services
Identification of tax
efficient investment
strategies

Tax & Estate

Planning

Competitive
execution and agent
approach to fixed
income
33