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Goldman Sachs Case Competition 2022:�

Joe Casebolt, Lauren Loef, Max Krueger, Henry Tan

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Our Team

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Joe Casebolt

Lauren Loef

Henry Tan

Max Krueger

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Industry Overview

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Sources: Company filings, Morgan Stanley Research

Market Cap Growth and Size for Verticals

WAN Optimization Consolidation

Virtual ADC

Acceleration

M&A Resurgence

2013

2014E

2015E

2016E

2017E

* Data presented in Millions

Riverbed leads WAN optimization with 56% market share
WAN optimization has future potential to reach CAGR of 5.2% with improved economic conditions from 0.5% CAGR

Market adoption of Virtual ADC’s is outpacing Physical by 2x
Pace of growth accelerating with a CAGR of 4.2% forecasted in 2017
ADC market is $2.25 bn as of 2013

2014YTD has seen an increasing recovery trend back to median with 36% cash deal premiums
Fragmented market share presents opportunity for companies to acquire and grow, yielding financial and strategic returns

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Riverbed Positioning

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Sources: Company filings, Morgan Stanley Research

(1) Calendar Year Projections

Riverbed's Strengths

* Data presented in Millions

Risk & Mitigating Factors

Market Leader in WAN Optimization – currently has 56% of WAN optimization market due to innovative primary product, Steelhead
Strong Player in Virtual ADC Space – holds 25% of virtual ADC Market, a fast-growing industry projected to reach $300mm by 2017
Application Performance Platform is a set of integrated solutions that reduce costs and maximize productivity and efficiency

Consolidation of WAN Optimization Market – currently at CAGR of 0.5% due to economic slowdown
Market Saturation – growth has slowed in WAN Optimization market as it matures
Gaining Market Share – presence of dominant players in mature physical ADC market slows growth of market share

Competitors

Revenue Projections ($mm)

Joe

Start off with Riverbed's strengths:

Highest market share of Wide Area Network Optimization market – Steelhead product which eliminates distance and location as performance variables
Strong positioning in the Virtual Application Delivery Controller
Consolidated Application Performance Platform serves their customers well in reducing costs and maximizing productivity and efficiency

Risk & Mitigating Factors:

Small Compound Annual Growth Rate for WAN
Growth has also been slowing for WAN as it matures, making it a difficult market to consistently perform well in
The presence of other dominant companies in the physical Application Delivery Controller market slows Riverbed's growth of market share

Revenue Projections:

This chart represents Riverbed's revenue projections up to 2018 – 2012 to 2013 modeled revenue projections to be more conservative
As you can see consistent growth is forecasted, reaching almost $1.5 billion by 2018

Competitors:

Some of Riverbed's main competitors include: Cisco, Citrix, f5, A10, and Blue Coat

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Elliott Management Acquisition Offer

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Sources: FactSet, Public Sources

Elliott Management Background

Elliott Management Playbook

Timeline

Hedge fund founded in 1977, $8.5 billion assets under management
Known for taking activist positions in high-profile distressed companies
Currently holds a 10.4% stake in Riverbed

Actelion: demanded removal of CEO, other directors, and corporate governance protections
National Express: attempted to sell, eventually lost proxy fight and exited their position
Novell: Acquired 19% of Novell in acquisition attempt, Novell eventually sold to Attachmate Corporation instead
Elliott has a history of drastic demands and willingness to engage in hostile takeovers

Nov 2013—Jan 2014

Received 6 unsolicited inquiries from PE firms about acquisition following positive revenue growth

Jan 8, 2014

Elliott Management makes offer of $19/share

Jan 15, 2014

Riverbed rejected Elliott's $19/share offer

Present

Elliott returned with standing offer of $21/share

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Riverbed Valuation

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Sources: Company filings, Morgan Stanley Research

(1) PTA Analysis revised valuation

Comparable Companies Analysis

* See Appendix for full analysis

Precedent Transactions Analysis

Summary

Precedent Transactions : Fusion-io, Sourcefire, Acme Packet, OPNET Technologies, Blue Coat Systems, CommScope, 3Com, Starent Networks
Comparable Companies: A10 Networks, Cisco, Citrix, F5 Networks, Radware, Juniper Networks

*Companies were selected based on similar industry characteristics, geographic location, size of market capitalization, and growth potential

	EV/Sales	EV	Share Price
High Quartile	6.3x	$7,144.00	$39.63
Median	3.9x	$4,422.60	$24.44
Low Quartile	2.5x	$2,658	$18.36

	P/E	EV	Share Price
High Quartile	21.1x	$4,464.42	$24.69
Median	20.4x	$4,326.82	$23.87
Low Quartile	14.4x	$3,147.46	$16.85

*Used P/E Multiple

*Used EV/Sales Multiple

Selected Companies/Deals

Comparable Companies Analysis resulted in an estimated Enterprise Value of $4,327 MM and an implied share price of $23.87

Precedent Transactions Analysis resulted in an estimated Enterprise Value of $4,422.60 MM and an implied share price of $24.44

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Discounted Cash Flow Analysis

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Sources: Company filings, Morgan Stanley Research

DCF Summary

* Data presented in Millions

Methodology and Assumptions

Calculation of EV and Share Price

Based off our DCF analysis, Riverbed's Enterprise Value ranges from $3907.3mm to $4511.8mm

Implied Share Price of $21.37 to $24.97

Projected income statement, balance sheet, and working capital using historical ratios

Used Exit Multiple Method to calculate Terminal Value

Assumed exit multiple of 9x, based off of Precedent Transactions and Comparable Companies Analysis
Used Exit Multiple Method instead of Gordon Growth Model because of the difficulty in accurately predicting long-term growth rate

Used WACC of 5.2%, calculated using target capital structure of 80% debt, 20% equity and assumed levered Beta of 1.5

Sensitivity Analysis: WACC vs. Exit Multiple

Joe

Methodologies:

DCF Summary ranges between this and that w an implied share price between this and that
In this analysis, we forecasted variables out to 2019, creating a 5-year forward projection
And we used the target capital structure method
To perform this valuation, we used the projected income statement, balance sheet, and working capital using historical ratios
We used an exit multiple of 9x, based on PTA and Comps
Along with this, we used the Exit Multiple Method over the Gordon Growth Model due to potential difficulty in accurately predicting a long-term growth rate
Our Weighted Average Cost of Capital that we used was 5.2%, which was calculated using target capital structure of 80% debt, 20% equity, and an assumed levered Beta of 1.5

Calculation:

As you can see here from the calculation, we found an implied share price of $23.17 from an Enterprise Value of $4.2 billion

Sensitivity Analysis:

This sensitivity table shows the different share prices that would be found using different WACCs and Exit Multiples

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Riverbed Valuation

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Sources: Company filings, Morgan Stanley Research

(1) Football Field Analysis corrected PTA

Executive Summary

Football Field

Implied Range

Enterprise Value

Share Price

Based off our three methods of analysis, the implied share price of Riverbed is between $20 and $24

Riverbed should not pursue a sale right now because Elliott's offer of $21/share undervalues the company

$20

$24

$3,677 MM

$4,349 MM

$39.63

$40.00

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Returning Value to Shareholders

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Sources: Company filings, Morgan Stanley Research

Value Generation

* Data presented in Millions

A10 Networks

An acquisition by Riverbed would be an exciting option to pursue to gain market share and create value for shareholders
A10 is a competitor operating in the ADC market with significant market share but a distressed position
Similar market conditions to OPNET Technologies acquisition

12% market share in ADC
Negative EBIT and EBITDA margins
Synergy in ADC Market — Virtual ADC projected to grow to $300mm in revenue by 2017 with a 4-5% CAGR from 2013-2017
A10's current EBIT Margin is -6%, rendering it a prime target for a distressed acquisition

Acquire A10

Allow for further growth

Return value to shareholders

Sell at greater premium for larger value

Riverbed Acquisition Timeline

Max

With these present valuations considered, we are looking to generate significantly increased returns for our shareholders. Primary drivers of value can be through investing in new technology, sales expenditure, and primarily through capitalizing on the growing V ADC market. Our team has run the numbers and in terms of shear capital efficiency for financial and strategic returns, we recommend initiating an offer for A10 Networks.

There are 3 main reasons to acquire A10:

This acquisition will give us a leading market share of the V ADC market, growing at a rate of 5% CAGR from 2013-17, 37% market share

It will breathe new life into the WAN network optimzation space similar to OPNET Technology- During this acquisition Riverbed was trading at nearly $45 a share 2011

Distressed asset- perfect buying opportuinity

Financed through cash and LBO- integration with our product suite will generate positive cash flows with expected revenue increase on the order of 13% with todays predections

A10- EV 628 Riverbed Cash 2014 153 LBO 80/20- 7% interest rate, with 13% EBITDA Growth nets the cash flow 6% growth

From this prime transaction and market opportuinity riverbed is in position to dominate two growing verticals, and can benefit from increased synergy and capital efficiency propelling growth.

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Executive Summary

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Sources: Company filings, Morgan Stanley Research

Situation

* Data presented in Millions

Decision

Analysis

Results

Riverbed is currently in the decision process of remaining a standalone company or selling
Rejected two offers from Elliot Management at $19 and $21 per share respectively

Acquire A10 to maximize shareholder value and capitalize on fast-growing virtual ADC space Q4 2014
Wait to reevaluate after acquisition period has settled- expected return on capital of 13% EBITDA Growth for next 5 years
Potentially sell to Cisco or Oracle for higher value with a more complete product suite,

Current standalone value: $3,677-$4,349 MM
Not a good time to sell – Elliott's current offer of $21/share undervalues Riverbed
Worth $20-24 per share based on valuation analysis
Premium returns on capital, with capital efficiency and synergy across verticals

The acquisition of A10 will grow Riverbed's market share and create intrinsic value for shareholders
Primed for a steady period of growth, Riverbed should reevaluate its position – determining continued growth potential
If they decide to sell, we believe it would be in their best interest to sell to an experienced tech company that has the resources to continually foster their growth, i.e., Cisco, Oracle

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Appendix

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Appendix – DCF and WACC

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Sources: Company filings, Morgan Stanley Research

* Data presented in Millions

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Appendix – Precedent Transactions

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Sources: Company filings, Morgan Stanley Research

* Data presented in Millions

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Appendix – Comparable Companies

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Sources: Company filings, Morgan Stanley Research

* Data presented in Millions

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Appendix – Working Capital

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Sources: Company filings, Morgan Stanley Research

* Data presented in Millions