Matt Dahl

Signal Hill
Communications Technology: Q4 2011 M&A Review
SectionI:Introduction
Communications technology stocks continued their steady improvement into the new year following the strong recovery in October. Gains have been driven by a strengthening economic and end market outlook. Analysts have noted positive channel checks suggesting growth in enterprise IT spending in networking. Although carrier capex was weak late in 2011, expectations are for growth in 2012 driven by investments in LTE and the need to keep pace with bandwidth demands of fixed and wireless data throughout the network. M&A activity continues, driven by strong deal activity in the systems domain as OEMs re-position their businesses. This was contrasted by a relatively quiet quarter in Comm IC.
Source: Signal Hill ($ in millions) Q4 '10 Systems Number of Deals Deal Volume Avg. Deal Value Components and Subsystems Number of Deals Deal Volume Avg. Deal Value Comm Semiconductors Number of Deals Deal Volume Avg. Deal Value 6 $1,497 $250 2 $197 $99 10 $4,575 $458 Q1 '11

Managing Director Communications Technology (650) 616-4046 [email protected]

Figure 1: Communications Technology M&A Deal Metrics

Q2 '11 6 3 $1,892 4 $1,100 $275 8 $7,497 $937

Q3 '11 4 $3,469 4 $402 $101 5 $4,325 $865

Q4 '11 10 $6,140 $768 3 $415 $104 1 $60 $60

$347 $58 2 $147 $74 13 $5,149 $396

$5,677 $10,406

Note:Based on transactions with reported transaction value greater than $25 million.

Figure 2: YTD Relative Price Performance (1/03/11 - 2/17/12) Q 4 2 0 11

Source:Capital IQ

Components: +22.4% Comm IC: +21.8% NASDAQ: +9.7% Systems: -15.1%

Note:Shaded region denotes Q4

IN THIS ISSUE: Communications Technology: Q4 2011 2 4 Communication Systems Components &Subsystems 6 8 Communication Semiconductors Comm Tech VCActivity 9 10 Public Market Statistics About Signal Hill

Communications Technology: Q4 2011

www.signalhill.com

C o m m u n i c a t i o n s Te c h n o l o g y Q 4 2 0 11

Section II:Communication Systems

Recent Stock Price Performance & Valuation Metrics
Stocks in the communications systems sector extended their fourth quarter gains into the new year. Enterprise networking stocks benefited from Blue Coats sale and rumors of a potential Brocade sale. Ciena and Infinera have benefited from an improving outlook for optical spending. For the most part, investors are getting more comfortable with revised expectations for growth in 2012 and long term catalysts for growth driven by bandwidth expansion.
Source:Capital IQ

Figure 3: Communication Systems Price Performance (9/30/11 - 2/17/12)

Figure 4: Enterprise Value / 2012E Revenue; Change Versus 3Q Quarterly Update

8.0x Enterprise Value / 2012E Revenue Multiple

FFIV APKT RVBD

4.0x
JNPR

ALLT ADTN

ARUN

2.0x

CSCO MSI

SONS CIEN CALX SVC BRCD SATS

1.0x
ERIC

INFN

HLIT ARRS SEAC SHOR EXTR IN NTGR

0.5x

ASX RIM NOK ALU TLAB

PIC PON SWIR

0.25

MRVC

NVTL

Large OEM

Telecom Networks

Acess & Video

Enterprise Networks

CPE & Devices

Source:Capital IQ as of 12/30/11. Note:Scale is logarithmic with a base of 2.0. 3Q represents multiples as of 11/11/11. 4Q represents multiples observed on 2/17/12.

Signal Hill

Section II:Communication Systems (cont)

Recent M&AActivity In Communications Systems
Strong deal activity in communications systems was driven in part by large OEMs continuing to prune businesses where they lack leadership, to strengthen the balance sheet and increase focus. NSN divested its Microwave Transport and Broadband Access businesses. Alcatel sold Genesys, its Call Center Software business, but reportedly broke off discussions to sell its remaining enterprise business. Financial sponsors were also active in the quarter with Blue Coats buyout by Thoma Bravo, Tekelecs acquisition led by Siris, and Genesys sale to TCV and Permira. In addition, PE firms were rumored to be looking at a Brocade privatization. Belden announced its intention to acquire RuggedCom to move up the value chain into Signal Transport. This announcement was followed by a $399MM competitive offer from Siemens AG on January 30th.
Figure 5: Quarterly M&A Deal Metrics by Segment

Source: Signal Hill ($ in millions) Q4 '10 Telecom Networks / Wireless Number of Deals Deal Volume Avg. Deal Value Access & Video Number of Deals Deal Volume Avg. Deal Value Enterprise Networks Number of Deals Deal Volume Avg. Deal Value CPE & Devices Number of Deals Deal Volume Avg. Deal Value Comm Software Number of Deals Deal Volume Avg. Deal Value 3 $209 $70 1 $3,882 $3,882 2 $204 $102 2 $151 $75 2 $130 $65 Q1 '11 1 $49 $49 2 $175 $88 1 $30 $30 1 $33 $33 1 $60 $60 Q2 '11 0 $0 NA 0 $0 NA 0 $0 NA 0 $0 NA 2 $1,177 $589 Q3 '11 0 $0 NA 0 $0 NA 3 $818 $409 1 $9,588 $9,588 0 $0 NA Q4 '11 4 $681 $170 2 $152 $76 2 $953 NA 1 $3,032 $3,032 1 $1,500 $1,500

Note:Based on transactions with reported transaction value greater than $25 million. Segmentation does not include $4.5BNortel Patent deal in Q2 11

Figure 6: Summary of Selected Q4 2011 M&A Transactions Source: Signal Hill Date Announced Seller
30-Jan-12 19-Dec-11 RuggedCom RuggedCom

Buyer
Siemens AG Belden

Enterprise Value ($M)

$399.8 $217.0

Enterprise Value/ Revenue LTM NTM

3.8x 2.0x

Segment

Rationale / Description
RuggedCom Inc. designs and manufactures rugged communications networking solutions. Belden has been steadily migrating to higher-growth and higher-margin businesses with the goal of transforming itself into a 'signal transmission company', and the RuggedCom acquiisition contributes to the formation of such an end-to-end solution. ADTRAN will combine its services with the Nokia Siemens Networks' Broadband Access business to deliver a full portfolio of solutions for customers. Blue Coat designs, develops, and sells products and services that optimize the delivery of business applications, Web content, and other information to distributed users over a WAN or the public Internet/Web. Tekelec engages in the design, development, manufacture, marketing, sale, and support of telecommunications products and services. DragonWave becomes a strategic supplier of packet microwave and related products to Nokia Siemens Networks with the goal of developing the next generation of backhaul products to support microwave solutions for mobile operators. Shifting its primary focus from WiMAX-based RAN solutions to offering multi-technology wireless broadband solution. Allows Sony to better integrate mobile phones into its electronics platforms. The acquisition of BNI Video augments Cisco's Videoscape platform and gives its customers a clear migration path to Videoscape. Genesys Telecommunications provides customer service software and contact center solutions. The company is well positioned to continue to take advantage of the positive trends in its expanding markets. Acquires a complementary provider product suite, and diversifies Arris' customer base by adding telcos and cable operators.

3.2x Enterprise Networks 1.7x Enterprise Networks NA Telecom Networks 1.7x Enterprise Networks 1.3x Telecom Networks NA Wireless NA Wireless NA CPE & Devices NA Access & Video NA Comm Software 0.6x Access & Video

12-Dec-11 9-Dec-11

7-Nov-11 4-Nov-11 2-Nov-11 27-Oct-11 20-Oct-11 19-Oct-11 11-Oct-11

Nokia Siemens Networks Oy, ADTRAN Fixed Line Broadband Access Blue Coat Systems Inc. Teachers Private Capital, Thoma Bravo Fund IX; Thoma Bravo Tekelec ZelnickMedia; Comvest; Sankaty; GSO; Siris Nokia Siemens Networks Oy, DragonWave Microwave Transport Business Wavion Sony Ericsson Mobile Communications BNI Video Alcatel, Genesys Telecom BigBand Networks Alvarion Sony Cisco Permira Advisers; Technology Crossover Ventures Arris Group

NA 775.4

0.5x 1.7x

507.1 144.4 30.0 3,031.6 99.0 1,500.0 53.0

1.3x NA 1.9x 0.4x NA 3.0x 0.6x

Note:Based on transactions with reported transaction value greater than $25 million. (1) Nokia Siemens transaction value not released but is assumed to be greater than $25M

C o m m u n i c a t i o n s Te c h n o l o g y Q 4 2 0 11

Section III:Components &Subsystems

Recent Stock Price Performance & Valuation Metrics
Comm optics stock prices have largely recovered from their lows after the flood in Thailand. Investors are looking forward as production comes back on line and end market demand in optical is looking positive. Up early this year, Industrial Optics is driven by increasing customer demand in microelectronics supported by devices sales and rising capital intensity in the semi market. In the embedded market, positive design wins and improving visibility resulted in better than expected results for Radisys, while Audiocodes is showing signs of recovery..
Figure 7: Components & Subsystems Price Performance (9/30/11 - 2/17/12)

Source:Capital IQ

Figure 8: Enterprise Value / 2012E Revenue; Change Versus 3Q Quarterly Update

8.0x
IPGP

Enterprise Value / 2012E Revenue Multiple

4.0x

2.0x

COAD FNSR JDSU ONET OPLK

IIVI

COHR RSTI GSIG NEWP DLGC RSYS AUDC

1.0x

0.5x

EMKR OCLR NPTN

0.25
OPXT

Comm Optics

Industrial Optics

Embedded Systems

Source:Capital IQ as of 12/30/11. Note:Scale is logarithmic with a base of 2.0. 3Q represents multiples as of 11/11/11. 4Q represents multiples observed on 2/17/12.

Signal Hill

Section III:Components &Subsystems (cont)

Recent M&AActivity In Components &Subsystems
In October 2011, Eurazeo and 3S Photonics announced a deal where by Eurazeo would acquire a majority stake in 3S Photonics for 37 million from Fonds Stratgique d'Investissement and other shareholders.At the same time Eurazeo would invest an additional 10MM primary capital in the Company, bringing total ownership to 83%. 3S CEO and other members of management will retain a 17% stake in the Company.
Figure 9: Quarterly M&A Deal Metrics by Segment

Source: Signal Hill ($ in millions) Q3 '10 Comm Optics Number of Deals Deal Volume Avg. Deal Value Industrial Optics Number of Deals Deal Volume Avg. Deal Value Embedded Systems Number of Deals Deal Volume Avg. Deal Value Wireless Subsystems Number of Deals Deal Volume Avg. Deal Value 0 $0 NA 0 $0 NA 1 $32 $32 0 $0 NA 1 $25 $25 1 $51 $51 1 $31 $31 2 $668 $334 0 $0 NA 1 $72 $72 0 $0 NA 0 $0 NA 0 $0 NA 2 $311 $155 0 $0 NA 1 $146 $146 1 $116 $116 1 $400 $400 2 $91 $46 1 $61 $61 Q4 '10 Q1 '11 Q2 '11 Q3 '11

Note:Based on transactions with reported transaction value greater than $25 million.

Figure 10: Summary of Selected Q4 2011 M&A Transactions

Source: Signal Hill Date Announced Seller 13-Oct-11 3S Photonics Enterprise Value ($M) $61.2 Enterprise Value/ Revenue LTM NTM Segment Rationale / Description 0.9x NA Comm Optics Eurazeo will help 3S Photonics consolidate its position in its traditional telecoms markets and broaden its presence in the industrial laser market. It will be supporting the companys external growth policy, including through future reinvestment. NA NA Wireless Starling provides antennas and SATCOM resource Subsystems allocation systems for aircraft communications. 1.8x NA Embedded Systems Provides Red Lion with SIXNET brand rugged Ethernet switch and industrial automation products targeted at M2M applications and expands its portfolio of industrial control solutions.

Buyer Eurazeo

6-Oct-11 6-Oct-11

Starling Advanced Panasonic Comm. Digitronics Inventioneering (dba SIXNET) Spectris plc, Red Lion Controls Division

25.4 72.0

Note:Based on transactions with reported transaction value greater than $25 million.

C o m m u n i c a t i o n s Te c h n o l o g y Q 4 2 0 11

Section IV:Communication Semiconductors

Recent Stock Price Performance & Valuation Metrics
In the past three months, stock prices and valuation multiples have improved broadly in Comm IC. At the same time, 2012 revenue estimates have come down 5-10% on average, indicating investors are getting more comfortable with reset expectations. Analysts are reporting signs that semi fundamentals are bottoming and channel checks suggest improving order rates. 1Q is still expected to be weak with a return to growth in 2Q and a stronger second half driven by strengthening fundamentals in infrastructure and enterprise spend.
Source:Capital IQ

Figure 11: Communication Semiconductor Price Performance (9/30/11 - 2/17/12)

Figure 12: Enterprise Value / 2012E Revenue; Change Versus 3Q Quarterly Update

EZCH

MOSY

8.0x
CAVM

Enterprise Value / 2012E Revenue Multiple

QCOM

4.0x
AVGO CY FSL BRCM MRVL LSI

MLNX IPHI GND PMC AMCC MSPD VTSS IDT PLX EXAR

TXCC SLAB ENTR

2.0x

SMSC

1.0x

0.5x

GGOX

0.25

IKAN

Large Cap

Telecom/Wireless

Enterprise

CPE & Devices

Source:Capital IQ as of 12/30/11. Note:Scale is logarithmic with a base of 2.0. 3Q represents multiples as of 11/11/11. 4Q represents multiples observed on 2/17/12

Signal Hill

Section IV:Communication Semiconductors (cont)

Recent M&AActivity In Communication Semiconductors
It was a quiet quarter for M&A with just one transaction announced during December. Lattices acquisition of SiliconBlue will bring lower end FPGA products targeted at higher volume consumer applications. The lull ended in January with five transactions announced including: Rambus / Unity, Semtech /Gennum, Vishay/Hi-Rel, Mindspeed/PicoChip and Entropic/Trident, STB Assets. With Gennum, Semtech extends its product portfolio around metro, access and enterprise networking markets. Mindspeed acquired small cell base station SoC vendor, PicoChip, to fill out its 3G/4G base station portfolio.
Figure 13: Quarterly M&A Deal Metrics by Segment

Source: Signal Hill ($ in millions) Q4 '10 Telecom / Wireless Number of Deals Deal Volume Avg. Deal Value Enterprise Number of Deals Deal Volume Avg. Deal Value CPE & Devices Number of Deals Deal Volume Avg. Deal Value 2 $302 $151 7 $4,506 $644 5 $7,403 $1,481 2 $100 $50 1 $60 $60 1 $525 $525 2 $109 $55 1 $42 $42 1 $29 $29 0 $0 NA 3 $671 $224 4 $535 $134 2 $53 $26 2 $4,196 $2,098 0 $0 NA Q1 '11 Q2 '11 Q3 '11 Q4 '11

Note:Based on transactions with reported transaction value greater than $25 million.

Figure 14: Summary of Selected Q4 2011 M&A Transactions

Source: Signal Hill Date Announced Seller 9-Dec-11 SiliconBlue Technologies Enterprise Value ($M) $60.0 Enterprise Value/ Revenue LTM NTM Segment Rationale / Description NA NA CPE & Devices Acquisition to help accelerate growth in Mobile Consumer market by adding a scalable, low cost, low power memory FPGA to the Lattice product roadmap.

Buyer Lattice Semiconductor

Note:Based on transactions with reported transaction value greater than $25 million.

C o m m u n i c a t i o n s Te c h n o l o g y Q 4 2 0 11

Section V:Summary of Communications Technology VCActivity

Recent VCInvestment Activity Communications Technology in
Figure 15: Communications Technology VC Funding Metrics

Steady activity continued with VC investments, with the most activity centered around devices and connectivity and two deals in comm optics. ip.access raised $15 million from existing investors to continue building out its small cell / coverage product roadmap. Cradlepoint raised $6 million providing 3G/4G network connectivity for M2M and backup applications. BinOptics completed a $13.3 million round led by new investor Advantage Capital. The Company uses proprietary manufacturing techniques to produce low cost DFB and FP lasers for communications.

Source: Signal Hill ($ in millions) Q4 '10 Systems Number Funding Volume Avg. Funding Value Components and Subsystems Number Funding Volume Avg. Funding Value Comm Semiconductors Number Funding Volume Avg. Funding Value
Note:Based on fundings greater than $2.5M

Q1 '11 9 7 $94 $15 5 $214 $43

Q2 '11 8 $105 $13 1 $10 $10 4 $47 $12

Q3 '11 2 $135 $68 2 $27 $14 6 $76 $13

Q4 '11 3 $29 $10 2 $37 $18 2 $37 $19

$133 $15 8 $79 $10

Figure 16: Selected VC Investments Q4 2011 Source: Signal Hill Date Announced Company 12-Dec-11 ip.access

Systems

9-Nov-11

CradlePoint

Amount Investors $15.0 Cisco Systems; Amadeus Capital Partners; Intel Capital; QUALCOMM Ventures; Rothschild & Cie Gestion; TE Connectivity; Scottish Equity Partners 6.0 8.1

Series

Segment CPE & Devices

Description ip.access manufactures picocell and femtocell infrastructure solutions for GSM, GPRS, EDGE, and 3G operators.

CPE & Devices Telecom Networks

CradlePoint, Inc. offers 4G/3G network router solutions. Kavveri Telecom Products Limited engages in the design, development, and manufacture of telecom infrastructure and wireless products for telecom, defense, and space applications in India and internationally. Bin Optics leverages proprietary manufacturing techniques to produce low cost, monolithically integrated DFB and FP lasers for communications applications.

25-Oct-11 Kavveri Telecom Products

15-Dec-11 BinOptics Componenets & Subssystems

$13.3 Advantage Capital Partners; Draper Fisher Jurvetson; Gefinor Ventures; Rand Capital; FA Technology Ventures; ArrowPath Venture Partners; Enhanced Capital Partners; Cayuga Venture Fund 23.6 Series C

Telecom Optics

18-Nov-11 Intune Networks

Telecom Optics CPE & Devices

Optical Packet Switched Transport technology to enable optical burst switching by leveraging its fast tuning lasers and burst mode receiver technology. Fitipower Integrated Technology, Inc. engages in the design, manufacture, and marketing of digital, analog, and mix signal, and display driver ICs. GainSpan Corporation, a Wi-Fi semiconductor company, provides Wi-Fi semiconductor and software solutions to sensors and other embedded applications in residential, commercial, industrial, and municipal sectors.

Communication Semiconductors

30-Dec-11 Fitipower Integrated Technology 5-Dec-11 GainSpan

$19.3 Hon Hai Precision Industry Co., Ltd.; Hyield Venture Capital Co., Ltd.; Bao Shin International Investment Co., Ltd. 18.0 Hatteras Funds; Intel; Mobile Internet Capital; New Venture Partners; Opus Capital; Sigma Partners Series C

CPE & Devices

Note:Based on fundings greater than $2.5M

Signal Hill

Section VI:Market Statistics for Selected Public Companies

Figure 17: Systems Trading Metrics Enterprise Value

C o m m u n i c a t i o n s Te c h n o l o g y Q 4 2 0 11
Figure 18: Components Trading Metrics Enterprise Value

Figure 19: Communication Semiconductors Trading Metrics

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Enterprise Value

About Signal Hill

Signal Hill is a privately-held investment banking partnership with a sole focus on growth companies. Our professionals have deep expertise in Information Technology, Media & Internet, Telecom Services & Internet Infrastructure, Communications, Education & Business Services, and Healthcare Services. Signal Hill has more than 50 professionals across five offices in Baltimore, Nashville, New York, Reston and San Francisco (SanBruno). Scott Wieler Chairman [email protected] Mathew Dahl Managing Director [email protected] Don More Managing Director [email protected] Chase Sanders Managing Director [email protected] Bart Shaeffer Director [email protected] Justin Puccio Vice President [email protected] Baltimore Nashville N e w Yo r k Reston San Francisco Ira D. Cohen Managing Director [email protected] J. Adam Hitt Managing Director [email protected] Jeff Nahley Managing Director [email protected] Matthew Shilling Managing Director [email protected] Franklin E.W.Staley Director [email protected] Greg Ager Managing Director [email protected] Howard Loewenberg Managing Director [email protected] Michael Parent Managing Director [email protected] Joel Strauch Managing Director [email protected] David Dolan Vice President [email protected] Justin Balciunas Managing Director [email protected] John MacDonald Managing Director [email protected] Henry Sage Managing Director [email protected] Douglas Webster Managing Director [email protected] Matt Fiore Vice President [email protected]

Signal Hill Disclaimer The information in this report has been obtained from sources believed to be reliable, but Signal Hill makes no representation as to the accuracy or completeness of such information or any opinions expressed herein. Signal Hill may provide, or may seek to provide advisory services to one or more companies mentioned herein. In addition, employees of Signal Hill may own or may purchase securities in one or more companies mentioned in this report. Signal Hill has no obligation and will not undertake to update, modify or amend this report for any reason, including for errors subsequently discovered. This report is not to be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any securities. 2012 Signal Hill. All rights reserved.

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January 2012

December 2011

$100 million

December 2011

November 2011

has been acquired by

received a strategic investment from

has received equity funding from

has been acquired by

Private Placement

November 2011

October 2011

September 2011

September 2011

September 2011

has been acquired by

has been acquired by

company

has been acquired by

has been acquired by

has been acquired by

August 2011

$97.5 Million

August 2010

July 2011

July 2011

June 2011

Mid-AtlanticSkilled Nursing Group (Sellers) has been acquired by has been acquired in a saleleaseback transaction by Series B Private Placement has been acquired by has been acquired by

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