1. Exit Strategies For Chinese Technology Companies CONFIDENTIAL DRAFT NEW YORK SILICON VALLEY BOSTON LONDON BROADVIEW INTERNATIONAL A DIVISION OF JEFFERIES & COMPANY, INC May 2005
9. US IPO vs. Follow-On Technology Market Stats QUARTERLY IPO ISSUANCES IPO PRICING VS. FILING RANGE QUARTERLY FOLLOW-ON ISSUANCES FOLLOW-ON PRICING VS. FILING RANGE As of 12/3/2004. Source: Jefferies Broadview capital market. Technology defined per SDC Platinum high technology industry classification Below Filing Range Within Filing Range Above Filing Range 0% 20% 40% 60% 80% 100% Q1 ‘03 Q2 ‘03 Q3 ‘03 Q4 ‘03 Q1 ‘04 Q2 ‘04 Q3 ‘04 Q4 ‘04 0% 20% 40% 60% 80% 100% Below Filing Range Above Filing Range Q1 ‘03 Q2 ‘03 Q3 ‘03 Q4 ‘03 Q1 ‘04 Q2 ‘04 Q3 ‘04 Q4 ‘04 - - 2 7 10 17 21 3 9 12 - 5 10 15 20 25 Q3 '02 Q4 '02 Q1 '03 Q2 '03 Q3 '03 Q4 '03 Q1 '04 Q2 '04 Q3 '04 Q4 '04 Number of Deals $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 Amount Raised (millions) 7 16 29 30 43 21 14 11 4 4 - 5 10 15 20 25 30 35 40 45 50 Q3 '02 Q4 '02 Q1 '03 Q2 '03 Q3 '03 Q4 '03 Q1 '04 Q2 '04 Q3 '04 Q4 '04 Number of Deals $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 $9,000 Amount Raised ($millions)
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11. The Dramatic Rationalization Of The Public Markets Has Contributed To The Market’s Health 1 Source: NASDAQ 2 Source: CapitalIQ 3 Source: Thomson Financial First Call Number Of NASDAQ Listed Public Companies 1 Mar 2000 – Sep 2004 (35%) (1,838) 5,000 DEC 2000 3,800 DEC 2001 3,500 DEC 2002 CHANGE ’ 00-’04 3,300 DEC 2003 5,181 MAR 2000 3,343 SEP 2004 56% of NASDAQ Listed Public Companies Have No Research Coverage 3 Trading Values <Cash <$100m <$250m # Companies 2 41 1,136 1,882 1% 34% 56% % of Total
12. The Current IT M&A Environment Has Returned To 1996 Levels M&A Activity 1992 – 9M 2004 Number Of Transactions North America - IT, Media, Communications Source: Broadview's Global Mergers & Acquisitions database 741.7 33.1 36.8 48.1 75.9 126.9 139.6 369.0 544.3 195.7 95.7 71.3 116.3 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 9M 2004 $0 $100 $200 $300 $400 $500 $600 $700 $800 Number of Deals Total Consideration ($B) 583 831 920 1,593 2,079 2,844 2,994 3,763 3,801 2,343 2,327 1,821 1,621 2,161 Median Deal Size ($MM) $8.5 $10.0 $11.0 $13.5 $12.2 $12.0 $15.0 $21.9 $28.1 $18.3 $13.5 $17.0 $16.4
13. The Venture Capital Industry Has Also Enjoyed A Recovery In Higher Value Private Company Exits 59 of These Companies Were Venture Capital-Backed Source: Broadview's Global Mergers & Acquisitions database. North American private seller transactions. Middle Market Transactions Will Drive Venture Capital Returns In The Current Environment 2000 2002 9M 2004 >$20MM 636 172 138 97 >$50MM 397 84 80 78 >$150MM 193 30 23 28 2003 Approximately 75% Of North American M&A Deals Over US$50MM In Value Were VC Backed For 9M 2004 20 of These Companies Were Venture Capital-Backed 15 of These Companies Were Venture Capital-Backed 50 of These Companies Were Venture Capital-Backed
14. Most Buyers Are Seeking Acquisitions At A Later Stage Of Company Development STAGE VALUE/ PROOF Technical Feasibility Product Functionality Customer Acceptance Business Model Works Economic Model Works Scalability Proven 5 6 Product is possible to do Product does what it is supposed to do Customers care Customers are willing to pay a rational economic price Company can be profitable Increasingly profitable growth is possible Size Of Addressable Market Drives Valuation Business Acquisition 3 4 Product Acquisition 1 2 Technology Acquisition
16. Chinese Companies Typically Go Public On The HK Main Board Or Seek Dual Listings The Mix Of IPO And M&A Exits For Chinese Companies In 2004 Have Returned To 2000 Levels Exit Strategy IPO Exit M&A Exit Dual Listing includes all companies listed on more than 1 exchange Other includes Shenzhen, Tokyo, Shanghai and New York Source: SDC. Excludes transactions where IPO gross proceeds and M&A deal values were < $25MM 34 36 2004 Total 2003 2002 2001 2000 190 116 32 19 44 11 37 11 43 39 M&A IPO
17. However, Chinese Technology Companies Have Historically Gone Public On The NASDAQ Exit Strategy In 2004, Nearly 50% Of Chinese Technology Companies Listed Solely On The NASDAQ Dual Listing includes all companies listed on more than 1 exchange Other includes Shenzhen, Tokyo, Shanghai and New York Source: SDC. Excludes transactions where IPO gross proceeds and M&A deal values were < $25MM IPO Exit M&A Exit 5 16 2004 Total 2003 2002 2001 2000 46 40 7 1 4 2 10 2 20 19 M&A IPO
18. Chinese Technology M&A / Minority Investment Activity Select 2003 – 2004 Transactions Involving Chinese Technology Companies As of November 24, 2004. Source: SDC. ($Millions)
19. A Profile Of Chinese Tech IPOs Shows High Quality, Profitable Companies With Strong Revenue Growth 1 As of 12/1/04. Source: Broadview’s IPO Database / Hoover’s IPO Central / Capital IQ ($Millions) Issue Date Name Offering Amount TTM Revenue TTM Revenue Growth Quarters of Profitability TTM EBITDA Margin % Change From IPO 1 TMC / TTM Revenue TTM P/E 12/2/04 Ninetowns $105.6 $21.1 43% 15 66% 0% 14.14 x 23.70 x 11/10/04 China Netcom 1,141.1 7,663.4 10% 14 52% 10% 1.74 x 9.70 x 10/27/04 eLong 62.1 13.3 94% 0 4% 58% 20.48 x NM 10/15/04 China Finance Online 80.6 3.5 122% 8 66% (8%) 37.08 x 77.84 x 10/7/04 Hutchison Telecom 808.7 1,597.8 32% 2 27% 4% 3.32 x 67.84 x 9/28/04 51job 73.5 45.9 77% 10 25% 181% 21.14 x 143.43 x 7/8/04 Kongzhong 100.0 14.3 3798% 5 41% 18% 12.67 x 30.00 x 5/13/04 Shanda 152.4 72.6 84% 8 43% 262% 26.27 x 59.82 x 3/12/04 SMIC 1,712.9 365.8 627% 1 48% (30%) 7.89 x NM 3/5/04 TOM Online 175.0 77.1 157% 4 30% 4% 5.60 x 13.90 x 3/4/04 Linktone 86.0 15.5 285% 4 31% (31%) 3.94 x 22.60 x 12/9/03 Ctrip.com 75.6 16.6 62% 6 37% 203% 39.78 x 76.25 x High 1,712.9 7,663.4 3798% 14 66% 262% 39.78 x 143.43 x Median 102.8 45.9 94% 5 37% 10% 12.67 x 59.82 x Low 62.1 3.5 10% 0 4% (31%) 1.74 x 9.70 x
20. U.S. Listed Chinese Technology Companies Are Growing Rapidly The Number Of NASDAQ And NYSE-Listed Companies In China And Their Aggregate Market Capitalization 1 Have Doubled Since December 2003 1 As of 12/4/04 * 5 companies are listed on the NYSE. The remaining are listed on the NASDAQ. 11 11 12 13 Number of Companies (Market Cap in $B) 2003-2004 IPOs Dec-04 Ninetowns Mar-04 SMIC Oct-04 Hutchison Telecom Nov-04 China Netcom Dec-03 Ctrip.com Mar-04 Linktone Mar-04 TOM Online May-04 Shanda Jul-04 Kongzhong Sep-04 51job Oct-04 China Finance Online Oct-04 eLong Listing Date Company 24 *
