IT Services, Cloud and Managed Services M&A Update February 2015

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IT Services, Cloud and Managed Services

M&A Update – February 2015

February 16, 2015

Generation Equity Advisors, LLC 8560 W. Sunset Blvd, Suite 500

West Hollywood, CA 90069 (310) 684-3130

TechMedia

Mergers.com

Technology and Digital Media Investment Banking M&A Advisory

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Generation Equity Advisors, LLC Page 2

Generation Equity Advisors is an independent investment banking and M&A advisory firm focused exclusively on the global Software, IT Services and Digital Media industry sectors. We cover the IT Services sector comprehensively including companies that provide cloud services, systems integrators, IT consultants, hosting/data centers, VAR’s and managed services firms. We advise buyers and sellers of companies and efficiently execute M&A transactions that help increase shareholder value. Our professionals have advised on $20+ billion in M&A transactions to date and have current clients and relationships globally with software, IT services and digital media companies as well as leading private equity firms.

Aaron Solganick, CEO Generation Equity Advisors

+1 (310) 684-3130 x101

aaron@generationequityadvisors.com

Table of Contents: M&A Update – Page 3 M&A Outlook – Page 4 IT Services M&A Update – Page 5

IT Services Public Company Valuation Table – Page 6 M&A Spotlight – Page 7

Sources for our research and data include: S&P Capital IQ, SEC Filings Yahoo! Finance and Company Websites

DISCLAIMER

The information contained herein is of a general nature and is not intended to address the circumstances of any particular company, individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. We perform our own research and also use third party research. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. This is not an offer or recommendation to buy or sell securities nor is it a recommendation to merge, acquire, sell or exit a specific company or entity. We do not hold any equity or debt position in any of the securities listed herein as of the date of this report.

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M&A Update

2014 was undoubtedly a breakout year for M&A dealmaking. Thompson Reuters reported that last year was the strongest year for dealmaking since before the recession with a 47% increase in the total value of worldwide M&A over 2013.

Also, according to Bloomberg’s Global M&A Market Review, North American deals increased by almost 55% in overall value compared to 2013. The leading sectors for last year were telecommunications and media, pharmaceuticals and healthcare, and energy.

The drivers behind 2014′s M&A activity were the profusion of cash available to be deployed and low interest rate financing available. Additionally, while less applicable to the middle market, slower corporate growth and earnings lagging from recession recovery forced corporate giants to seek growth externally rather than focus on organic increases in revenue.

The Wall Street Journal recently reported that in 2014, purchase price multiples reached 2007 levels, the pre-recession peak year. Like that pre-recession peak, multiples are being driven by high levels of leverage, with debt being available at well over 5x EBITDA. Deals for bigger companies, or those with $50 million or more in EBITDA, fetched an average of 9.7x EBITDA, just a hair lower than the 2007 level of 9.8x times EBITDA for such deals.

Smaller companies were also sold for an average of 9.7x times EBITDA in 2014, higher than 9.3x average purchase price multiples that such companies were gone for in 2007, LCD’s data show. Through November 2014, private equity firms paid an average of 9.7x a target company’s trailing 12 months’ EBITDA, almost matching the historical high seen in 2007. The average multiple was up from 8.8x EBITDA in 2013, according to loan data tracker Standard & Poor’s Capital IQ Leveraged Commentary and Data.

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Private Equity Backed Exits

According to deal research firm Preqin, 2014 represented the highest ever aggregate exit value for private equity buyout fund managers, with a total of 1,604 exits globally valued at $428 billion. This is up over 30% on the total value of exits in 2013, and is the highest ever annual value of private equity-backed buyout exits. This has resulted in a significant increase in the level of capital being returned to buyout fund investors, which had almost surpassed the full-year 2013 amount as of November 2014 (the latest data available). The total value of deals in 2014 reached $332 billion globally, the highest annual amount since 2007.

Other Key Buyout Deal Market Facts for PE Backed Exits, According to Preqin:

 In 2014 there were 3,423 private equity-backed buyout deals announced globally with an aggregate value of $332 billion, representing the highest aggregate deal value since 2007 and a 10% increase on 2013.

 North America saw $181 billion of deals in 2014, a 2% fall on the aggregate value in the previous year despite an 11% rise in number of deals to 1,899.

 The total value of deals in Asia in 2014 ($42 billion) was 68% higher than the 2013 figure, compared to a 16% drop in number of deals in the region to 270 in 2014.

 The aggregate value of public-to-private transactions saw a notable drop from

accounting for 30% of the total deal value in 2013 to 10% in 2014, due largely to the take-private acquisitions of H.J. Heinz Company, Dell Inc. and BMC Software in 2013 which totalled $59.8 billion.

 Small-cap investments valued at under $250 million accounted for 68% of the number of private equity deals announced globally in 2014, down from 76% in 2013. Deals in the mid-market range ($250m - $1 billion)comprised 24% of all deals in 2014, compared to 18% in the previous year.

2015 M&A Outlook

The continuation and expectations of these market factors will apparently make 2015 another record year in mergers & acquisitions. Ernst & Young’s (E&Y) recently published US Capital Confidence Barometer suggests that the robust market will continue for the near term. An all time high of 80% of E&Y’s respondents believe that the M&A market will improve in 2015. The majority of dealmakers asked were evaluating more than one deal and almost half were considering more than 5 potential transactions.

E&Y also reports that the middle market will benefit from this bullish outlook. Expectations of deal value have significantly shifted toward middle market deals over the past 12 to 18 months. Prior M&A markets have been led by large cap transactions, followed by a period of focus on the middle market as acquirers fully digest their large acquisitions and reshape their future plans. 2015 is on track to meet this trend.

Pitchbook suggests that private equity has approximately $750 billion of “dry powder” available for dealmaking, along with a large portfolio of aging companies that will soon result in additional liquidity.

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IT Services M&A Update

2015 is off to a strong start in terms of deals announced within the IT Services industry sector. In January, Atos announced the acquistion of Xerox’s IT outsourcing business for $1.1B. Xerox divested its IT outsourcing business to focus on its core BPO operations, while Atos gains access to Xerox’s blue chip clients. Also in January, Presidio announced its sale to Apollo Global Management. Presidio is a provider of IT consulting and infrastructure solutions, including deployment and integration, hardware and software development, cloud and hosting and operational support servicesApollo Global Management, a publicly-owned investment manager, entered into a definitive merger agreement to acquire Presidio from American Securities.

Apax Partners announced the acquisition of Norway-based EVRY ASA, a publicly-traded IT consulting services company that provides business consulting, project management, systems development, infrastructure consulting and application management services firm. Apax Partners, a UK-based private equity firm, entered a transaction agreement to acquire EVRY for $1.0 billion (0.6x LTM Revenue; 6.8x LTM EBITDA).

UK-based Onyx Group announced the acquisition of Knowledge IT, a provider of information communications technology, virtualization, cloud computing and data center solutions and services. Onyx Group, a provider of IT connectivity services, acquired Knowledge IT to strengthen its IT infrastructure and support services portfolio.

Hays plc announced the acquisition of Veredus Corp., which provides IT staffing services for contract and permanent placement throughout the US. Hays plc, a London-based global IT staffing and recruitment services company, acquired an 80% stake in Veredus at an implied enterprise value of $55 million (8.3x LTM EBITDA) to bolster its IT contracting services offering in the U.S.

In early February, Brazil based Stefanini IT Solutions merged with IHM Engenharia. Stefanini currently operates in 34 countries and generates approximately 40% of its combined revenues. In 2014, the group announced revenues of 2.35bn reais (US$870mn), up 11% year-on-year. Similar growth is expected for this year.

Average M&A Valuation Multiples as of February 2015

IT Services Cloud, Managed

and Hosting Services VAR Enterprise Value/Revenue (ttm) 0.8x – 1.0x 1.1x – 2.0x 0.3x - 0.4x Enterprise Value/EBITDA (ttm) 6.0x – 9.0x 8.0x – 11.0x 8.1 – 10.9x

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Publicly Traded IT Services Firms

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Valution Table

CONSULTING Ticker Stock Price Market Cap EV/Revenue EV/EBITDA

Advisory Board Co. ABCO 53.59 2.25B 3.94 35.57 Charles River Associates Intl CRAI 29.93 285.2M 0.80 8.16 FTI Consulting FCN 37.47 1.49B 1.15 9.24 Hackett Group HCKT 7.97 232.7M 1.21 13.57 Huron Consulting Group HURN 76.63 1.72B 2.26 11.37 Information Services Group III 4.09 150.1M 0.89 8.70 Navigant Consulting NCI 15.03 728.8M 1.18 7.55 Resources Connection RECN 17.22 648.3M 0.94 10.95

Average 1.55 13.14

SYSTEMS INTEGRATORS Ticker Stock Price Market Cap EV/Revenue EV/EBITDA

Cap Gemini CAP.PA 64.98 10.6B 1.01 10.39 CIBER CBR 4 314.8M 0.33 10.37 CGI Group GIB 41.48 12.94B 1.78 10.76 Edgewater Technology EDGW 7.23 82.3M 0.55 6.10 Hackett Group HCKT 7.97 232.7M 1.21 13.57 Perficient PRFT 18.98 653.4M 1.75 12.77 Sapient SAPE 24.98 3.5B 2.30 18.20

Average 1.28 11.74

OUTSOURCING Ticker Stock Price Market Cap EV/Revenue EV/EBITDA

Accenture ACN 87.96 55.25B 1.65 10.48 ATOS ATO.PA 67.49 6.7B 0.76 7.14 Computer Services Corp. CSC 62.14 8.74B 0.71 6.02 HP HP 65.31 7.05B 1.79 4.22 IBM IBM 158.2 156.8B 2.04 8.23 iGATE Corp. IGTE 37.99 3.07B 2.74 13.52 Unisys UIS 23.09 1.15B 0.27 4.18

Average 1.42 7.68

OFFSHORE Ticker Stock Price Market Cap EV/Revenue EV/EBITDA

Cognizant Technology Solutions CTSH 58.89 35.85B 3.26 16.08 iGATE Corp. IGTE 37.99 3.07B 2.74 13.52 Infosys INFY 36.33 41.52B 4.21 14.62 Syntel SYNT 44.36 3.71B 3.36 10.56 Virtusa VRTU 38.45 1.14B 2.04 15.02 Wipro WIT 13.62 33.42B 4.11 18.09

Average 3.29 14.65

VAR Ticker Stock Price Market Cap EV/Revenue EV/EBITDA

CDW CDW 35.99 6.20B 0.80 10.93 ePlus PLUS 80.43 594.94M 0.64 8.41 Insight Enterprises NSIT 24.41 1.0B 0.18 5.05 Systemax SYX 12.31 452.98M 0.10 16.46

Average 0.43 10.21 Note: Stock Prices and Market Data as of February 11, 2015

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M&A Spotlight

All Covered Acquires IT Services Firm Preferred Networks Corporation

Foster City, Calif. and Ramsey, New Jersey - January 30, 2015 - All Covered, a division of Konica Minolta Business Solutions U.S.A., Inc. (Konica Minolta) and one of the nation’s leading IT Services companies, has acquired the assets of Preferred Networks Corporation of Atlanta. The company’s clients will now be serviced by the All Covered IT Services division of KMBS, giving All Covered a stronger foothold in the greater Atlanta area. The acquisition became official January 1, 2015. Terms of the deal were undisclosed.

"We are excited to begin 2015 with news of this acquisition," says Todd Croteau, president of All Covered. "Preferred Networks Corporation has developed an outstanding model of delivering cloud technologies, data backup solutions and managed IT services to its customers in the Atlanta area. The company’s mission and services align perfectly with All Covered’s commitment to providing unmatched IT services to organizations across all industries.”

In addition to gaining Preferred Networks Corporation’s clients, All Covered also expands their capabilities with a talented group of IT services professionals that understand the wide range of technology demands facing businesses today. All of Preferred Networks Corporation’s employees were retained in the acquisition, including David Webster, the company’s founder and president.

Since its inception in 2007, Preferred Networks Corporation has built a reputation locally for delivering top-of-the-line IT services to customers in the greater Atlanta area. Beginning with contract-based managed IT services as its core offering, Preferred Networks Corporation added cloud and desktop services in 2012. The company’s Infrastructure-as-a-Service (IaaS) cloud offering focuses on hosted applications, backup and disaster recovery services, and Citrix XenApp virtual apps that allow companies to reduce or eliminate large investments on IT infrastructure and allow them to access data from anywhere in the world.

For more information, please go to: http://www.allcovered.com/about/news-press/all-covered-acquires-pnc#sthash.EWn3LetO.dpuf

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M&A Spotlight

Stefanini IT Solutions announces merger with IHM Engenharia

February 3, 2015 - Brazilian IT services multinational Stefanini has started off 2015 with its engines on full-throttle. The company announced it is merging its operations with IHM Engenharia, a Brazil-based multi-sector engineering services firm, according to a Stefanini statement.

The merger is aimed at increasing Stefanini's footprint in the industrial segment and follows the company's credo of joining forces with or acquiring companies whose portfolio complements that of Stefanini.

Transaction consideration was not disclosed. The transaction is still subject to regulatory approvals.

At a year-end press conference in December, CEO Marco Stefanini underlined that during 2015 the company would be resuming the previous year's rate of mergers and acquisitions, both in Brazil and abroad.

Founded in 1994, IHM Engineering operates in the segments of mining, metals, chemicals, paper, agribusiness, food, automotive, power, and oil & gas, among others.

Initially, the focus will be on areas where the two companies have direct operations and offices in Brazil. The partnership will then be successively extended to Latin America and other regions. For IHM, the deal allows it to take advantage of Stefanini's comprehensive international clout in order to expand outside Brazil.

For more than two years, Stefanini has been ranked by Brazilian think-tank Fundação Dom Cabral as the most "globalized" Brazilian IT company and is the fourth most "international" IT company in the country, according to the latest ranking.

Stefanini currently operates in 34 countries which generate some 40% of its revenues. In 2014, the group collected revenues of 2.35bn reais (US$870mn), up 11% year-on-year. Similar growth is expected for this year.

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Generation Equity Advisors, LLC is an independent investment bank and M&A advisory firm

focused exclusively on the global Software, IT Services, Internet and Digital Media industry sectors. We advise buyers and sellers of companies and efficiently execute transactions to increase shareholder value. Our professionals have advised on $20+ billion in M&A transactions to date and have current relationships globally with companies as well as leading private equity firms.

Please contact for information regarding this report or to inquire about an M&A transaction: Aaron Solganick, CEO

aaron@generationequityadvisors.com Generation Equity Advisors, LLC

8560 W. Sunset Blvd, Suite 500 West Hollywood, CA 90069 (310) 684-3130

TechMediaMergers.com

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