ENTERPRISE SAAS AND CLOUD Q1 2019
CONTRIBUTORS HIGHLIGHTS
David Michaels Record M&A activity in 2018 with 1,867 deals totaling nearly $200 billion Managing Director (858) 926-5950 IPO activity was also quite strong with seven deals in Q4 2018 [email protected] Private M&A targets were valued at a median revenue multiple of 5.0x in 2018, up significantly from 4.1x in 2017 Teak Murphy Market volatility in Q4 2018 led to a median stock price decline of 16.4% for the SaaS & Cloud Director 160 public company universe (310) 746-5006 [email protected] M&A activity remains strong with no immediate signs of a reduction in buyer appetite There is risk that a market correction in the next 12-24 months would put downward pressure on M&A activity levels and valuations
www.capstoneheadwaters.com March 2019 KEY TAKEAWAYS
M&A ACTIVITY & MULTIPLES
PUBLIC COMPANY VALUATION & OPERATING METRICS
CAPSTONE HEADWATERS SOFTWARE TEAM ENTERPRISE SAAS AND CLOUD: M&A AND VALUATION UPDATE | Q4 2018
KEY TAKEAWAYS
TRANSACTION ACTIVITY MEDIAN VALUATION MULTIPLES MEDIAN PUBLIC COMPANY METRICS
Record M&A activity with 1,867 deals M&A revenue multiple of 5.0x for private Stock price fell a median of 16.4%, slightly totaling nearly $200 billion with both targets jumped significantly from 4.1x in better than NASDAQ’s 17.5% drop public and private transaction dollars at 2017, while public company median of Revenue growth of 24.0% in 2018 vs record levels 4.4x also represents a near-term high 22.7% for 2017 though growth is IPO activity was quite strong with seven Public company median multiples of 6.0x projected to slow to 17.3% deals in the quarter, including three in revenue and 24.2x EBITDA were in line EBITDA margin of 13.7% in 2018 up from December despite difficult market with 2017 and remain at recent highs 10.9% in 2017, marking the first EBITDA conditions margin increase in recent history
NOTABLE RECENT M&A TRANSACTIONS MOST ACTIVE BUYERS M&A OUTLOOK
Buyer Target Segment EV M&A activity remained high through year
Cloud & IT end despite market weakness though it is $34.0B infrastructure too soon to tell whether market CRM & Customer $8.0B choppiness could impact activity in 2019 Service Evergreen Our discussions with strategic and private Coast Vertical Market $5.4B Capital equity acquirers have not indicated a Analytics / AI / BI $2.3B reduction in deal appetite
Vertical Market $2.2B Some risk that volatile markets could put downward pressure on valuations or lead Analytics / AI / BI $2.1B to a market correction that impacts M&A
Finance & activity levels and valuations $1.9B Administration
Vertical Market $1.9B
Marketing & $1.6B Advertising Cloud & IT $1.5B Infrastructure 2 KEY TAKEAWAYS
M&A ACTIVITY & MULTIPLES
PUBLIC COMPANY VALUATION & OPERATING METRICS
CAPSTONE HEADWATERS SOFTWARE TEAM ENTERPRISE SAAS AND CLOUD: M&A AND VALUATION UPDATE | Q4 2018
2018 M&A DOLLAR VOLUME
M&A dollar volume exploded to nearly $200 billion with both public and private deals hitting record levels » Megadeals tend to drive dollar volume with eight deals north of $5 billion led by IBM’s (NYSE:IBM) acquisition of Red Hat ($34 billion) in October; Broadcom’s (NASDAQ:AVGO) acquisition of CA ($18 billion) in November; and Salesforce’s (NYSE:CRM) acquisitions of Qualtrics and Mulesoft for a total of $14.5 billion » Lower deal volume in 2017 was driven by a lack of megadeals while 2016 dollar volume was driven by Microsoft’s (NASDAQ:MSFT) acquisition of Linkedin ($29 billion) and Quintiles’ acquisition of IMS Health ($14 billion) The weak Q4 stock market didn’t slow down M&A activity with $73 billion in deals for the quarter, the highest dollar volume since we’ve tracked the segment
LTM = Last Twelve Months 4 ENTERPRISE SAAS AND CLOUD: M&A AND VALUATION UPDATE | Q4 2018
2018 M&A TRANSACTION VOLUME BY SEGMENT
Transaction volume reached a record 1,867 deals, the highest level we’ve seen since tracking the segment as strong deal flow continues » The 498 deals completed in Q4 2018 represents a record for deal activity The Vertical Market is by far the largest segment by deal count, representing nearly 40% of LTM transaction volume for 2018, though Cloud & IT infrastructure also posted very strong deal volume
LTM = Last Twelve Months 5 ENTERPRISE SAAS AND CLOUD: M&A AND VALUATION UPDATE | Q4 2018
2018 M&A TRANSACTION VOLUME BY DEAL SIZE – PRIVATE TARGETS
Private company M&A activity set a volume record with 1,842 deals » Megadeals exploded with 26 deals over $1 billion for the year Median transaction size rose slightly to $37 million Deals under $25 million represent over 40% of deal volume for transactions that reported values
LTM = Last Twelve Months 6 ENTERPRISE SAAS AND CLOUD: M&A AND VALUATION UPDATE | Q4 2018
2018 M&A TRANSACTION VOLUME BY DEAL SIZE – PUBLIC TARGETS
Public transaction volume fell to just 25 deals, though the number of deals over $1 billion approached their highest levels and represented over 50% of deals closed for the year » Median deal size in 2018 jumped to $1.1 billion driven by the high volume of deals north of $1 billion » Through Q4 2018 11 deals closed, the most active quarter of the year, with six of those deals valued at over $1 billion
LTM = Last Twelve Months 7 ENTERPRISE SAAS AND CLOUD: M&A AND VALUATION UPDATE | Q4 2018
MEDIAN 2018 REVENUE MULTIPLES – PRIVATE TARGETS
Median 2018 revenue multiple jumped to 5.0x, the highest level in recent years » The 25th-75th percentile spread is the broadest we’ve seen, driven by a large volume of higher multiple transactions Through Q4 2018, the median private target revenue multiple was 3.9x which represented the weakest quarter of 2018
LTM = Last Twelve Months 8 ENTERPRISE SAAS AND CLOUD: M&A AND VALUATION UPDATE | Q4 2018
MEDIAN 2018 REVENUE MULTIPLES – PUBLIC TARGETS
The median 2018 revenue multiple paid for public companies nearly doubled the weak 2017 multiple, hitting a recent high of 4.4x » Median revenue multiple for deals over $100 million skyrocketed to 7.8x » Through Q4 2018, median revenue of 6.6x represented the strongest quarter of the year, though with just 11 data points that is not indicative of a trend Q4 2018 had some high multiple public transactions as Mulesoft, Red Hat, and SendGrid were acquired at double digit revenue multiples Private Equity aggressively acquired SaaS & cloud companies, representing half the transactions over $500 million at a median revenue multiple of 8.0x
LTM = Last Twelve Months 9 ENTERPRISE SAAS AND CLOUD: M&A AND VALUATION UPDATE | Q4 2018
MEDIAN REVENUE MULTIPLES BY SEGMENT – LAST 5 YEARS
Median revenue multiples across SaaS segments for deals in the past five years ranged from 2.0x to 5.8x, with a median of 3.8x » Cloud & IT Infrastructure achieved the highest median multiple of 5.8x, followed by Finance & Administration and Analytics/AI/BI The median revenue multiple for all 2018 deals outperformed the five year average
10 ENTERPRISE SAAS AND CLOUD: M&A AND VALUATION UPDATE | Q4 2018
HIGHEST REVENUE MULTIPLE TRANSACTIONS FOR 2018
LTM Enterprise Premium to 1 Ann. Date Buyer Target Segment Target Description Revenue Value Mo Prior Multiple
Provides code hosting services that allow developers to build software for open source and private projects 6/4/2018 Cloud & IT Infrastructure $7.5B 37.5x NA in organizations.
Provides AI-enabled cloud security analytics. Software provides features for protecting Amazon Web 10/03/2018 Analytics / AI / BI Services (AWS), Microsoft Azure, and Google Cloud computing accounts by monitoring network traffic, $173M 34.6x NA user activities, DevSecOps risk assessment, and compliance.
IT & Network 6/11/2018 Provides DevOps incident management, collaboration, and documentation SaaS for businesses. $120M 24.0x NA Management
Provides open source application and data integration platform-as-a-service (PaaS) to help organizations 3/20/2018 Data / Cloud Integration $6.5B 21.9x 43.1% change and innovate faster by making it easy to connect the world's applications, data and devices.
Provides customer experience-focused software that collects customer and employee feedback via online 11/11/2018 CRM & Customer Service $8.0B 21.5x NA surveys.
Provides application threat detection and prevention SaaS for businesses by monitoring and protecting 7/26/2018 Cloud & IT Infrastructure $140M 20.0x NA legacy, new, and third-party applications using LanSec.
Provides Linux kernel-based open source operating systems and container management software tools for 1/30/2018 Cloud & IT Infrastructure $250M 16.7x NA servers used in data center and clustered deployment environments.
Provides mobile-based project management SaaS for the building and construction industry. Software 11/20/2018 Vertical Market includes team collaboration features that allow users to share and mark up building plans, sharing of specs $875M 14.6x NA and requests for information, and reporting.
Provides Web and mobile email marketing SaaS and related SMTP API software that enables marketing 10/15/2018 Marketing & Advertising $1.6B 12.3x 0.5% and B2C communications for businesses and mobile app developers.
Provides online transaction anti-fraud software and SaaS for businesses and enterprises, enabling 1/29/2018 Cloud & IT Infrastructure $821M 11.7x NA companies to verify and authenticate user logins and avoid malware attacks.
Excludes deals with Target company revenue less than $5M 11 ENTERPRISE SAAS AND CLOUD: M&A AND VALUATION UPDATE | Q4 2018
NOTABLE M&A TRANSACTIONS FOR Q4’18
LTM Enterprise Premium to Ann. Date Buyer Target Segment Target Description Strategic Rationale Revenue Value 1 Mo Prior Multiple Provides open-source Linux OS, middleware, desktop and IBM ponied up for the largest software transaction ever to Cloud & IT server virtualization and systems management software, as well 10/28/2018 strengthen its open-source capabilities and expand its $34.0B 10.8x 39.4% infrastructure as hybrid cloud management PaaS, for businesses and cloud offering, with a particular eye toward hybrid cloud. consumers globally. SAP paid an enormous multiple to marry the operational CRM & Customer Provides customer experience-focused software that collects data its systems collect with the experience data from 11/11/2018 $8.0B 21.5x NA Service customer and employee feedback via online surveys. Qualtrics, betting the combination will yield improved insights. Veritas and Evergreen, subsidiary of Elliott Management Evergreen Provides network-based medical record, revenue cycle, patient who has been pressuring for a sale, acquired athenahealth 11/12/2018 Coast Vertical Market engagement, care coordination, and population health services $5.4B 4.1x 6.6% with plans to merge the business with Virence, also owned for medical groups and health systems. Capital by Vertitas. Develops artificial intelligence and machine learning software. Merrick acquired AI Medical Systems as it looks to 10/06/2018 Analytics / AI / BI The company was founded in 2016 and is based in Zurich, leverage artificial intelligence to improve its robotics and $2.3B NA NA Switzerland. monitoring systems.
Provides wealth management SaaS for direct investors, bankers, Canadian pension fund CDPQ teamed with Al Gores’ 10/09/2018 Vertical Market $2.2B NA NA asset and wealth managers, life insurers, and advisers globally. Generation to acquire GA and HIG’s stake in FNZ.
The merger of equals combines Cloudera’s data Provides open-source Apache Hadoop data processing and warehousing and machine learning prowess with Horton’s 10/03/2018 Analytics / AI / BI data management software and support software, as well as $2.1B 6.6x NA end-to-end data management to create a leading next- training and consulting services, for businesses. gen data platform. Provides cloud-based technology business management (TBM) Vista placed a big bet on Apptio’s ability to accelerate Finance & SaaS for businesses. Its SaaS gives an overview of cost and 11/11/2018 growth as a private company with an aggressive multiple $1.9B 8.2x 28.6% Administration consumption of technology investments including cloud and and strong premium to Apptio’s recent stock price. on-premises deployments. Provides ERP and CRM SaaS for health and fitness facilities. Vista placed a big bet on Mindbody’s ability to accelerate Software provides features for facilities scheduling, workforce 12/24/2018 Vertical Market growth as a private company with an aggressive multiple $1.9B 8.1x 42.6% management, e-commerce, and business analytics. Also and strong premium to Mindbody’s recent stock price. provides related mobile fitness applications. Provides Web and mobile email marketing SaaS and related SendGrid fills the email gap in Twilio’s lineup of APIs Marketing & 10/15/2018 SMTP API software that enables marketing and B2C making the deal a natural fit and solidifying its position $1.6B 12.3x (0.3%) Advertising communications for businesses and mobile app developers. for enabling communications. Provides AI-based IT security management SaaS providing As Blackberry continues to reinvent itself as a player in the Cloud & IT features for intrusion protection against malware and viruses by 11/16/2018 enterprise IoT space, Cylance’s offering further $1.5B 11.5x NA Infrastructure predicatively identifying attacks to stop them before they strengthens Blackberry’s security positioning. execute.
Includes largest transactions based on Enterprise Value Parenthesis indicate a negative # 12 ENTERPRISE SAAS AND CLOUD: M&A AND VALUATION UPDATE | Q4 2018
MOST ACTIVE SAAS & CLOUD BUYERS – LAST 2 YEARS
SaaS/Cloud Transactions Company Date Company Value Date Company Value Date Company Value
12/19/18 Financial Risk Solutions Ltd. NA 1/15/18 Sicap Schweiz AG NA 9/11/17 Furlong Business Solutions Limited NA 10/12/18 Greycon Ltd. NA 1/12/18 Blayhall Marine [HavenStar Software] NA 9/6/17 Atex NA 10/1/18 Coreworx Inc. NA 1/9/18 Pike13 Inc. NA 9/5/17 Amazing Charts LLC NA 9/20/18 Helm Operations NA 1/8/18 Infian LLC NA 8/31/17 BBT Software AG NA 9/13/18 Nokia Corporation (IP video business) NA 1/3/18 Forsikringens Datacenter A/S NA 8/11/17 JR3 WebSmart LLC NA 8/2/18 Aleyant Systems, LLC NA 12/13/17 Automatic Netware Ltd. [Bookassist] NA 6/28/17 Magor Corporation $2.1M 39 deals 8/1/18 Ez-Runner Systems Ltd NA 11/28/17 Financial Aid Mgt For Education NA 6/20/17 Onshore Development [WebCheckout] NA 7/10/18 Dispatching Solutions, Inc NA 11/14/17 Hospitality 101 [CaterTrax] NA 4/13/17 Innovative Computer Solutions Inc. NA 6/28/18 Pace Software Inc. NA 11/14/17 Prof. Software Services [ReloSpec] NA 3/13/17 Innosoft Canada Inc. NA 6/5/18 Customer Insight Inc. NA 10/26/17 Syscon Justice Systems NA 3/9/17 ShipNet A/S NA 5/31/18 Orion Wine Software, Inc. NA 10/25/17 MCR Enterprise Solutions Ltd. NA 3/2/17 Shoplogix Inc. NA 3/30/18 XLerant, Inc. NA 10/3/17 Clinical Computing PLC NA 2/17/17 Quintessential School Systems NA 2/1/18 Real Estate Digital LLC NA 9/25/17 MorCare LLC NA 1/3/17 Tarantula Global Holdings Pte. Ltd. NA
12/24/18 MINDBODY Inc. $1,750.1M 6/4/18 Integral Ad Science Inc. $800.0M 6/28/17 PayLease LLC NA 12/11/18 7Park Data, Inc. NA 4/23/18 Allocate Software plc $450.0M 5/30/17 Lithium Technologies Inc. NA 11/29/18 Wrike Inc. $800.0M 10/26/17 Datto Inc. NA 5/30/17 Xactly Corporation $576.8M 11/11/18 Apptio Inc. $1,940.0M 10/11/17 JAMF Software, LLC NA 5/16/17 Zapproved Inc. NA 19 deals 10/2/18 Starhome BV NA 9/11/17 Gather Technologies Inc. $55.0M 4/17/17 Market Track, LLC NA 8/15/18 iCIMS Inc. NA 8/23/17 Applause App Quality, Inc. NA 8/7/18 Alegeus Technologies LLC $750.0M 6/29/17 ScoutIt Inc. [InfoScout] NA
11/30/18 PEC Safety Operations LLC $225.0M 6/12/18 MeridianLink, Inc. NA 8/4/17 Frontline Education, Inc. NA 11/5/18 Veracode Software $950.0M 5/31/18 LogRhythm Inc. $525.0M 6/7/17 Riskonnect Inc. NA 9/4/18 Apttus Corporation NA 2/9/18 Nintex Group Pty Ltd. NA 5/3/17 Kofax Limited $1,350.0M 8/13/18 Quorum Business Solutions, Inc. NA 1/17/18 Motus LLC NA 5/3/17 Lexmark (Kofax, ReadSoft, Perceptive) NA 17 deals 7/10/18 Centrify Corporation NA 11/27/17 Barracuda Networks, Inc. $1,612.2M 1/19/17 Planview Inc. $800.0M 6/13/18 CRIF Lending Solutions NA 11/8/17 ABC Financial Services, Inc. NA
10/17/18 IFS Global Holdings [SmartFreight] $14.3M 4/23/18 Softcargo NA 9/12/17 Cargoguide International BV NA 8/16/18 Trinium Technologies, LLC $49.9M 4/23/18 EasyLog NA 8/14/17 CMS Transport Systems Pty. Ltd. NA 6/21/18 Pierbridge, Inc. $59.4M 3/14/18 LSP Solutions B.V. $6.2M 8/11/17 Prolink Solutions Co. Ltd. $2.9M 6/8/18 Fenix Data Systems Inc $2.5M 12/20/17 ABM Data Systems Ltd $13.2M 7/5/17 Bysoft Solucoes em Sistemas $9.1M 16 deals 5/28/18 SaaS Transportation, Inc. $2.9M 12/20/17 CustomsMatters $1.1M 4/23/18 PB & Asoc. and Softcargo and EasyLog $19.0M 12/13/17 Microlistics Pty Ltd $30.4M
13 ENTERPRISE SAAS AND CLOUD: M&A AND VALUATION UPDATE | Q4 2018
MOST ACTIVE SAAS & CLOUD BUYERS – LAST 2 YEARS (CONTINUED)
SaaS/Cloud Transactions Company Date Company Value Date Company Value Date Company Value
11/19/18 FSLogix Inc. NA 4/2/18 Forerunner Software (BI assets) NA 6/29/17 Cloudyn $55.0M 09/13/18 Lobe Artificial Intelligence, Inc. NA 2/13/18 Chalkup Corp. NA 5/24/17 Hexadite $100.0M 06/20/18 Bonsai AI, Inc. NA 1/29/18 PlayFab Inc. NA 4/10/17 Deis Inc. NA 06/04/18 GitHub, Inc. $7,500.0M 1/3/18 Avere Systems, Inc. NA 1/17/17 Donya Labs [SimplyGon] $70.0M 14 deals 05/20/18 Semantic Machines Inc. NA 8/15/17 Cycle Computing LLC NA
10/11/18 Total Defense Inc. NA 1/11/18 Talkwalker NA 7/11/17 ABIT GmbH NA 9/5/18 CEB Inc. NA 11/27/17 Bazaarvoice, Inc. $524.1M 6/1/17 NYSE Governance Services Inc. NA 5/30/18 FrontStream Holdings LLC NA 10/26/17 Logi Analytics, Inc. NA 4/28/17 Tangoe Inc. $305.0M 5/22/18 Virgin Pulse NA 9/25/17 AppRiver, LLC NA 13 deals 2/12/18 Inkling Systems, Inc. NA 8/2/17 Medius AB NA
10/22/18 DataFox Inc. NA 4/24/18 Grapeshot Limited $454.0M 3/13/17 Webtrends (analytics business) NA 10/17/18 goBalto Inc. NA 2/15/18 Zenedge LLC NA 1/23/17 Netsuite Spain, S.L.U. NA 9/25/18 Iridize NA 12/18/17 Aconex Limited $1,258.9M 1/19/17 Apiary Inc. NA 5/16/18 DataScience, Inc. NA 4/18/17 Moat Inc. $600.0M 13 deals 4/30/18 Vocado NA 4/17/17 Wercker B.V. NA
11/7/18 Interactive Collegiate Solutions LLC Digital NA 11/30/17 Capturepoint [CommunityPass] NA 8/15/17 Group Interactive Networks, LLC NA 11/7/18 Avalanche LLC NA 11/30/17 E-Websity, Inc. NA 4/26/17 Bunk1 NA 11/7/18 Bidlily NA 10/26/17 Circuits & Systems [Chaverware] NA 3/29/17 ABC Sports Camps NA 10/24/18 DanceStudio-Pro NA 10/24/17 Cloud for Good (Congregation product) NA 13 deals 4/11/18 SofTrek NA 9/28/17 Gingr NA
10/16/18 Communicator Corporation NA 2/7/18 ThreatTrack Security, Inc. NA 4/13/17 Campaigner NA 10/10/18 Ekahau, Inc. NA 10/12/17 StreamSend NA 1/17/17 Unified Email LLC NA 10/8/18 The Communicator Corporation $9.9M 4/13/17 MXForce NA 1/17/17 Meixler Technologies Inc. [GreenFax] NA 12 deals 7/19/18 Line2 NA 4/13/17 Scrypt Inc. (fax assets) NA 1/17/17 CudaMail NA
12/3/18 COMSA Computer und Software NA 6/26/18 Building Robotics, Inc. NA 9/21/17 Infolytica Corporation NA 10/3/18 Electrocon International, Inc. NA 6/7/18 LOCOM Software GmbH NA 8/30/17 TNO Automotive [TASS Intl.] NA 9/18/18 LightWork Design, Ltd. NA 5/17/18 J2 Innovations Inc. NA 4/28/17 HaCon Ingenieurgesellschaft mbH NA 12 deals 8/1/18 Mendix Inc. $700.1M 3/20/18 Aimsun SL NA 4/19/17 Medicalis Corp. NA
8/2/18 Duo Security, Inc. $2,350.0M 12/7/17 47Line Technologies Inc. [Cmpute.io] NA 5/4/17 Saggezza Inc. NA 6/19/18 July Systems Inc. NA 10/23/17 BroadSoft, Inc. $2,284.4M 5/1/17 Viptela Inc. $610.0M 5/1/18 Accompani Inc. $270.0M 10/19/17 Perspica NA 1/24/17 AppDynamics Inc. $4,032.8M 11 deals 1/24/18 Skyport Systems Inc. NA 7/13/17 Observable Networks, Inc. NA 14 KEY TAKEAWAYS
M&A ACTIVITY & MULTIPLES
PUBLIC COMPANY VALUATION & OPERATING METRICS
CAPSTONE HEADWATERS SOFTWARE TEAM ENTERPRISE SAAS AND CLOUD: M&A AND VALUATION UPDATE | Q4 2018
ENTERPRISE SAAS & CLOUD 160 PUBLIC COMPANY UNIVERSE – PART 1
Analytics / AI / BI
Cloud & IT Infrastructure
Cloud Computing, Storage & Delivery
Communication & Collaboration
Content Creation & Management
CRM & Customer Service
16 ENTERPRISE SAAS AND CLOUD: M&A AND VALUATION UPDATE | Q4 2018
ENTERPRISE SAAS & CLOUD 160 PUBLIC COMPANY UNIVERSE – PART 2
ERP, Supply Chain & Commerce
Finance & Administration
Human Resources
Marketing & Advertising
Vertical Markets
Software Conglomerates 17 ENTERPRISE SAAS AND CLOUD: M&A AND VALUATION UPDATE | Q4 2018
Q4 2018 ENTERPRISE SAAS & CLOUD IPOS
18 ENTERPRISE SAAS AND CLOUD: M&A AND VALUATION UPDATE | Q4 2018
MEDIAN STOCK PERFORMANCE – SAAS & CLOUD 160
SaaS & Cloud 160 experienced a significant median drop of 16.4% in Q4 but slightly outperformed the NASDAQ for the quarter, though a strong first three quarters of the year provided a 13.7% LTM median gain for the year, well above the 3.9% LTM drop for the NASDAQ » All segments saw median drops, with all but Human Resources down double digits » Only 25 companies in our SaaS & Cloud 160 posted stock price increases for the quarter
LTM = Last Twelve Months 19 ENTERPRISE SAAS AND CLOUD: M&A AND VALUATION UPDATE | Q4 2018
MEDIAN LTM REVENUE MULTIPLES – SAAS & CLOUD 160
The median LTM revenue multiple remained flat at 6.0x despite the weak end to the year, still well above historical levels » Finance & Administration and Analytics/AI/Business Intelligence industries command the highest multiples around 8.0x » Content Creation & Management lags well below the median of 3.4x though Adobe and Wix both trade at premium multiples of 12.3x and 7.1x, respectively
LTM = Last Twelve Months 20 ENTERPRISE SAAS AND CLOUD: M&A AND VALUATION UPDATE | Q4 2018
MEDIAN LTM EBITDA MULTIPLES – SAAS & CLOUD 160
The median EBITDA multiple improved slightly from 2017 to 24.2x, well above historic levels All but three segments trade over 20x EBITDA with five segments above 30x Analytics/AI/Business Intelligence tops the chart, though most companies in that category are not yet profitable or recently turned profitable. The category continues to quickly expand as AI and analytics are increasingly leveraged across the enterprise
LTM = Last Twelve Months 21 ENTERPRISE SAAS AND CLOUD: M&A AND VALUATION UPDATE | Q4 2018
MEDIAN REVENUE GROWTH – SAAS & CLOUD 160
Median revenue growth increased to 24.0%, slightly above recent years though growth has been consistently in the low 20% range Growth is projected to slow for 2019 to 17.3% » Only Marketing & Advertising and Analytics/AI/Business Intelligence are expected to grow over 20% in the next year
LTM = Last Twelve Months 22 ENTERPRISE SAAS AND CLOUD: M&A AND VALUATION UPDATE | Q4 2018
MEDIAN EBITDA GROWTH – SAAS & CLOUD 160
Median EBITDA growth continues to climb, reaching 23.0% for 2018 NTM EBITDA growth is projected to slow to 19.7% » Half the segments project greater than 20% EBITDA growth with Human Resources leading at 26.4% projected growth
LTM = Last Twelve Months 23 ENTERPRISE SAAS AND CLOUD: M&A AND VALUATION UPDATE | Q4 2018
MEDIAN GROSS MARGIN TRENDS – SAAS & CLOUD 160
Median gross margins increased to 70.3%, the highest gross margin in recent years Gross margins vary by a fairly wide range across segments » Cloud & IT Infrastructure, Communication & Collaboration, and Marketing & Advertising all command ~75%+ gross margins » CRM & Customer Service, Cloud Computing/Storage, and Vertical Market trail with median gross margins in the low 60% range
LTM = Last Twelve Months 24 ENTERPRISE SAAS AND CLOUD: M&A AND VALUATION UPDATE | Q4 2018
MEDIAN EBITDA MARGIN TRENDS – SAAS & CLOUD 160
Median EBITDA margins improved in 2018 after four straight years of declines, possibly indicating that companies have pulled back on reinvestment for higher growth and shifted into harvest mode » Software Conglomerates generate strong EBITDA margins from their mature business models and large scale » The Vertical Market segment achieves high EBITDA margins despite the relatively low gross margins, often focusing on developing mature business models sooner than horizontal players who are more willing to trade near term profitability for increased growth
LTM = Last Twelve Months 25 KEY TAKEAWAYS
M&A ACTIVITY & MULTIPLES
PUBLIC COMPANY VALUATION & OPERATING METRICS
CAPSTONE HEADWATERS SOFTWARE TEAM ENTERPRISE SAAS AND CLOUD: M&A AND VALUATION UPDATE | Q4 2018
2 SENIOR SOFTWARE COVERAGE TEAM 7 Capstone Headwaters has organized a highly skilled transaction team with deep industry expertise, close relationships with market leaders, and extensive execution experience
David Michaels John Snead David Francione Teak Murphy Amit Mujumdar David DeSimone Head of TMT Head of International TMT Head of Fintech Director Director Director David brings 28 years of John Snead is responsible for David has over 17 years of Teak has over 15 years of Amit has 15 years of experience David has over 15 years of investment banking experience managing Capstone’s Central experience as an investment experience assisting technology providing strategic advice to experience in equity, debt and in technology M&A and European investment banking banker and leads the firm’s companies on mergers, boards and management teams M&A transactions financing activities Fintech practice acquisitions, IPOs, and capital of technology businesses Previously, David served as a Previously, he founded Previously, he founded Previously, David served as raises Previous experience with Principal at Bowen Advisors, SagePoint Advisors and was a Grenport Limited, was Senior Vice President at Prior experience includes Stephens, Lazard, GCA; Corp was a Vice President at Co-Founder, Partner, and Managing Director in Kroll’s Silverwood Partners, was head SagePoint Advisors, Dev @ Dex / Business.com Boenning & Scattergood and Managing Director at corporate finance group, was a of corporate development for Montgomery & Co., Cowen, and BCom, Finance, from McGill held positions at Needham & Montgomery & Co. Director in Arthur Andersen’s Elcom International and held Enterprise Partners Venture University Company, RobertsonStephens Corporate Finance Practice and positions at SS&C Technologies Capital and J.P. Morgan BS, Engineering, from University MBA, Finance, from University held positions at KPMG and and Advest, Inc. of Michigan BS, Finance, from University of of Toronto (Rotman) BA, Government, from Morgan Grenfell MBA, Finance, from UCLA BS, Finance, from Central Southern California Harvard University BS, Accounting, from University Connecticut State University of Wolverhampton MBA, Finance, from University MBA, from University of of Connecticut Birmingham
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