Keys to Successful M&A: Transparency, Security

and Process

About AppFolio SecureDocs

AppFolio SecureDocs is a virtual data room for sharing and

storing sensitive documents both internally and with outside

parties.

AppFolio, Inc. Company Basics:

• Founded by the team that created and launched GoToMyPC and

GoToMeeting

• Backed by leading technology companies and investors

• Web-based business software for financial and legal professionals

Nat Burgess, Corum Group

Nat is a lawyer, investment banker and angel investor with over 20 years of experience in the technology sector. Prior to joining Corum, Nat worked for Morgan Stanley in New York and Tokyo, Activision in Los Angeles, and the SEC in Los Angeles.

Nat has negotiated transactions with Microsoft, Intel, Google, Symantec, BMC, Fiserv, and many other leading companies. Prior to joining Corum, Nat co-founded Postcard Software, an early Internet company. He has invested in several technology startups, including Cequint, SiteScout, MessageMind, PockitDoc, and Viziify.

Nat is a frequent commentator on CNBC and MSNBC. He graduated from Yale College and the UCLA School of Law, and is a member of the Washington State Bar Association.

Nat BurgessPresidentCorum Group Ltd.

About Corum Group

We only work with:

Privately-held firms on the sell-side.

Software and related tech companies.

M&A specialists since 1985.

Optimal Outcome process

Team approach

Largest tech M&A educator

Largest database

Sold more software-related firms than anyone

About Corum Group

Poll Question No. 1

Staying ahead of consolidation• AccountMate Software• ACCPAC • Activant• Baan• Best Software • Brain International• CDC Software• Consona • Daamgard • Epicor • Exact • Geac • Great Plains • Halo Holdings

• Harper and Shuman• Infor Global• Infinium• Intentia• Invensys• JD Edwards• Lawson• Macola • Maxwell Business

Systems• Microsoft • Myob Limited• Navision • Oracle• PeachTree Software

• PeopleSoft • Red Pepper• PWA Group• Ross Systems• Real World• SAGE Group• SAP• SBT Accounting• Scala • Sesam • Softbrands• Soloman • State of the Art

US Exchanges

Aggregate Markets

Q4:10 Q1:11 Q2:11 Q3:11 Q4:11 Q1:12 Q2:12 Q3:12 Q4:12 Q4:10 Q1:11 Q2:11 Q3:11 Q4:11 Q1:12 Q2:12 Q3:12 Q4:12

EV/EBITDA

12.33 12.34 12.29 9.44 10.49 10.95 9.83 10.43 9.91

EV/S

2.44 2.38 2.27 1.82 1.77 2.04 1.76 1.8 1.78

Top Strategic Acquirers: 2012

18

16 1615 15

14

12 1211 11

10 10 10 10 109

12

10 10 10

8

7 7 7

6 6

5 5

4 4

Top Private Equity Acquirers: 2012

Excess Cash Driving M&A

All estimates in US $Billions *As of Dec. 2012

Cash Reserves Increase Held Offshore

2007 2012 Amount Percent Amount Percent

$9 $121* $112* 1244%* $83* 68%*

$6 $67* $61* 1017%* $58* 87%*

$6 $32* $26* 433%* $25* 80%*

$6 $45 $39 650% $20 44%

$3 $46 $42 1050% $41 89%

$9 $15 $6 67% $7 47%

$4 $9 $5 125% $5 56%

10 Reason M&A Will Remain Strong

1. Extraordinary change – interrelated mega trends

2. Strategic buyers have record cash

3. Debt is at lowest cost ever

4. Private equity - over $1 trillion available

5. New public foreign buyers (e.g. China, India)

10 Reason M&A Will Remain Strong

6. Entrance of new non-tech buyers (e.g. Bosch)

7. Crowdfunded buyers (Facebook, Zynga, Groupon)

8. American companies are cheap to foreign investors

9. Strong financial markets

10. Software rising in importance (e.g. HP, IBM, Dell)

Poll Question No. 2

Manage:

• Transparency

• Security

• Process

To Achieve:

• Highest Value

• Lowest Execution Risk

• Minimal Post-Closing Liabilities

From Startup to Behemoth

Stages of Growth

PIONEER BUILDING ESTABLISHED

Valu

ation

Pre

miu

m

TransparencyInformation

Transparency

PRELIMINARY DUE DILIGENCE CHECKLISTPlease populate the data room with the documents referred to below for Company and each of its subsidiaries and predecessors. (Unless the context otherwise requires, all references to the “Company” include Company and each of its subsidiaries and predecessors.) Except where a list, schedule or description is requested, please provide us with a copy of the requested agreement, correspondence or other document. Please do archive all “privileged” documents separately; however, please indicate whether any “privileged” documents have been withheld.We would be happy to discuss with you the most effective and least burdensome way in which you might respond to this request for documents. Thank you.

Page 1 of 37

Transparency

TimingDetailed pipelineCustomer ReferencesCustomer ListSource Code SamplesCap Table (& Distributions)Intellectual PropertyCorporate DocumentsFinancialsLitigationWeek: 1 2 3 4 5 6 7 8

Transparency

Transparency

BEST PRACTICE:

The Data Room should be updated to “complete” at the end of every quarter...

From the inception of the company

Detailed pipelineCustomer ReferencesCustomer ListSource Code SamplesCap Table (& Distributions)Intellectual PropertyCorporate DocumentsFinancialsLitigation

Transparency

If you are prepared, you can be:

• Crisp and professional

• Completely transparent

• In Control of the Schedule

Transparency

And avoid this

Transparency

Or this

Fill the Gaps over Time

1. Landlord Consent

2. Missing Shareholder (Russia)

3. Missing Shareholder (Iraq)

4. Articles of Incorporation (Olympia)

5. Work for hire (Bratislava)

6. Environmental Indemnification (landfill)

Access from Anywhere

1. Cab to the printer

2. Airplane to Hong Kong

3. Rental car to Fedex

4. Secure FTP

5. $ Virtual data room $

6. SecureDocs

Transparency Revisited

• Highest Value

• Lowest Execution Risk

• Minimal Post-Closing Liabilities

Poll Question No. 3

Security

Why the NDA doesn’t matter• Perceived as a formality• Seldom litigated• Can’t put the cat back in the bag

Security

Why the NDA does matter• IP protection for the benefit of the ultimate buyer• Sets the proper tone• Framework for negotiating precise terms of disclosure

• Read the fine print• Non-enforcement of patent rights against company and successors• Assignment of ownership interests in patents• Commitment to provide all due diligence materials in French• 10 year term• Non-compete• Personal liability for signatories, including liquidated damages

Security

Staged Qualification1) Sector, Size, Customer Profile2) Company, Products, Customers, Growth Rate3) (NDA) Detailed financials, roadmap

Security Revisited

• Highest Value

• Lowest Execution Risk

• Minimal Post-Closing Liabilities

Poll Question No. 4

Process

IntegrationClosingDueDiligenceNegotiationDiscoveryContactResearchPreparation

Stage 1: Preparation

IntegrationClosingDueDiligenceNegotiationDiscoveryContactResearch

Preparaton

Preparation

Set tasks, timeline Allocate staff resourcesConduct internal due diligenceCompile business/marketing planReady financials/projectionsReady presentation materialsBegin collecting due diligence materials

Stage 2: Research

IntegrationClosingDueDiligenceNegotiationDiscoveryContactResearch

Preparaton

Prepare buyers list (A&B level, financial, non tech) Perform strategic analysis on each buyerPrepare preliminary valuationDetermine proper contact (Execs, EA’s, advisors)Outside advisor/board/investor influencersPrepare position statement for each buyer

Preparation

Stage 3: Contact

IntegrationClosingDueDiligenceNegotiationDiscoveryContact

Preparaton

Create introductory correspondenceDraft/customize executive summaryExecute NDAs and non-solicitations Screen initial interest, valuation expectationsEstablish log on all communicationsRefine position/process based on feedback

ResearchPreparation

Stage 4: Discovery

IntegrationClosingDueDiligenceNegotiationDiscovery

Preparaton

Coordinate conference calls, site visits, and meetingsEstablish technology review processPrepare formal valuation reportDevelop synergy and contribution analysisSet up NDA with customers, contractors, etc.Finish due diligence on buyer

ContactResearchPreparation

Stage 5: Negotiation

IntegrationClosingDueDiligenceNegotiation

Preparaton

Organize and host final visitsProvide structure & valuation guidanceCreate an auction environmentNegotiate with top bidder(s)Sign Letter of Intent (L.O.I.)Inform other bidders of No Shop

DiscoveryContactResearchPreparation

Stage 6: Due Diligence

IntegrationClosingDue

Dilligence

Preparaton

Verification of financial statements/ projectionsDetermine if outside advisors/opinions neededEstablish confidential data roomTechnical/Legal/Ownership due diligenceWritten explanation of business model/methodologiesComplete definitive agreement/ attachments

NegotiationDiscoveryContactResearchPreparation

Stage 7: Closing

IntegrationClosing

Preparaton

Final reps & warranties Determine escrow hold-backsFinal opinion(s)Sign contractsArrange payment/distributionRegulatory filingsDisclosure Schedules

Due DilligenceNegotiationDiscoveryContactResearchPreparation

Stage 8: Integration

Integration

Preparaton

Advanced planning – during negotiationDetermine synergiesBest practices analysisInterim transition teamEmployee retention planSet up monitoring/reporting

ClosingDue

DilligenceNegotiationDiscoveryContactResearchPreparation

Qualifying the BuyerTop 10 Questions

1. Why are you interested in my company?

2. What acquisitions has your company done?

3. What is your preferred deal structure?

4. What is your approval process?

5. Who is involved in the decision?

Qualifying the BuyerTop 10 Questions

6. How do you see our company fitting into yours?

7. What’s your integration process?

8. Who are your outside advisors?

9. How did your acquisitions work out?

10. Can I talk to companies you have acquired?

Top 10 Deal Killers

1. Dealing with only one buyer

2. Misalignment: shareholders/empl/mgmt

3. Contact at the wrong level

4. Improper research of potential buyers

5. Misunderstanding buyer process/models

Top 10 Deal Killers

6. Inability to portray value properly

7. Improper due diligence preparation

8. Not qualifying buyers properly

9. Not orchestrating all buyers properly

10. Ego – Greed – Arrogance

Top 6 Value Destroyers

1. Confidentiality—internal/external

2. Theft of technology

3. Loss of staff (non-solicitation)

4. Wear on CEO/management

5. Business drop-off—lack of focus

6. Going to market too late

Contact Us

AppFolio SecureDocs

50 Castilian Drive

Goleta, CA 93117

Phone: (866) 700-7975

info@securedocs.com

sales@securedocs.com

www.securedocs.com

@SecureDocsVDR

Corum Group

19805 North Creek Parkway Suite 300

Bothell, WA 98011

Phone: (425) 455-8281

info@corumgroup.com

www.corumgroup.com

@CorumGroup

Thank You!

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