INVESTMENT BANKING NEWSLETTER TECHNOLOGY APRIL 2018 FROM THE DIRECTOR’S DESK
Dear Reader,
Welcome to the eleventh edition of the monthly Technology Newsletter from Spark Capital. With this newsletter, we have tried to give you a flavour of various updates across the Software, Tech Services, Internet, and FinTech sectors.
India’s consumer internet industry is undergoing tremendous innovations. Increasing internet penetration and digitization are changing the paradigm of consumer internet.
Saavn’s sale to JioMusic could be a key step in the evolution of consumer internet industry in India. The deal proves that distribution, reach and large user bases aren’t the significant competitive moats (as they once were). JioMusic has levelled the playing field to such an extent that a new entrant has commanded twice the value of Saavn.
The mobile user base is 15x larger than the PC world, hence the older competitive moats don’t work, the disruption cycles are so fast, that the competition in the consumer internet has never been fiercer.
We are starting to see in some established categories with large numbers of entrants and few barriers to entry, where only price is the differentiator, that commodification is inexorable. If you are competing on price, at some point you will bottom out where you can no longer undercut. At that point, the business will begin to compete on service rather than customer acquisition, technology, category creation etc.
Horizontal e-commerce has seen two clear leaders emerge which are Flipkart and Amazon respectively. We expect further consolidation among vertical players in grocery, food delivery, furniture.
Recently, we saw two interesting partnerships; Flipkart with MakeMyTrip and MakeMyTrip with OYO Rooms both synergizing the reach to a wider consumer base for their travel and hotels; MakeMyTrip will leverage the large customer base of Flipkart’s platform to drive online bookings in travel services and OYO’s hotels will be available for booking on MakeMyTrip.
There will be a litany of cascading effects post these deal/partnerships. Notwithstanding the discussions on valuation, founders will redouble their efforts to focus on their business and innovation will accelerate. For incumbents, the race is on to defend their businesses. For startups, the opportunity to disrupt has never been more accessible.
Apr 2018 – Spark Technology Newsletter 2 FROM THE DIRECTOR’S DESK
As a part of this newsletter, we also wanted to bring in a direct perspective from leading industry operators in certain select segments. For this edition, we have picked the insur-tech segment and have included an interview of EasyPolicy, an emerging insurance technology company in our ‘Expert Speak’ section. I would like to take this opportunity to thank Mr. Divyanshu Tripathi, Co- founder & CEO of EasyPolicy for being of great help and for providing his thoughts.
Also covered in this edition are the latest trading and transaction updates across the global technology sector. I am sure the section on “From our Equities Desk” would be an interesting read.
I hope that you will find this Newsletter insightful and look forward to your feedback on this monthly market overview.
Vikash Kabra Director and Head – Technology, Investment Banking
Apr 2018 – Spark Technology Newsletter 3 WHAT’S INSIDE?
INTO THE IT’S EASY: 05 REAL 06 COMPARE. WORLD SELECT.
COVER STORY INTERVIEW GET INSURED. Revolutionizing insurance distribution
08 09 a Market Statistics
NEWS OVERVIEW b TECHNOLOGY RECENT TECHNOLOGY Trading Comps MARKET DEVELOPMENTS SNAPSHOT c Recent activities and Software | Tech Services | developments across the Indian Global Transactions Internet | FinTech technology landscape
FROM OUR 17 EQUITIES DESK Insights from Spark’s ANALYSIS Institutional Equities Desk
Apr 2018 – Spark Technology Newsletter 4 INTO THE REAL WORLD
Spark fact file The ride-hailing saga
Investment Banking Case Study – Consolidation driven by Softbank USD 5.6 Bn Total transaction Major events shaping the ride hailing industry – Driven by Softbank and its investments value till date
USD 3.8 Bn Oct 2014 SoftBank enters Ola with a Capital raised till $210 Mn funding round date SoftBank enters Grab with a Dec 2014 $250 Mn investment USD 1.8 Bn M&A transaction May 2015 Didi Chuxing invests in Lyft value till date
SoftBank enters Jun 2016 300+ Didi-Chuxing Number of fund relationships Aug 2016 Didi-Chuxing takes over globally Uber’s operations in China
Didi-Chuxing invests in Jan 2017 USD 700 Mn 99 Taxis Average annual deal closure value Aug 2017 Didi-Chuxing invests for the last 3 years in Careem
Didi-Chuxing invests Aug 2017 11 in Taxify No. of transactions > USD 100 Mn Uber merges its operations Nov 2017 with Yandex in Russia
~USD 1.2 Bn SoftBank invests~$1.3 Bn Dec 2017 Current value of in Uber transactions being Jan 2018 Didi-Chuxing acquires executed 99 Taxis
Grab acquires Uber’s South- Mar 2018 east Asia business
Technology The ride-hailing concept started with the launch of Uber in 2009. The sector has seen ~USD 1.8 Bn significant capital infusion and marquee consolidations. With Uber’s Asian peers Total transaction building domestic supremacy, Uber has found it hard to sustain in its key Asian value till date markets. Currently, India is the only key Asian market for Uber with direct operations. However, with SoftBank being a major investor in both, Uber and Indian rival Ola, the race might end up with another consolidation for Uber in Asia. Softbank (either directly or through its investments) has significant investment across most of the leading ride hailing companies across the world including
Source: Public sources Apr 2018 – Spark Technology Newsletter 5 EXPERT SPEAK
Full Service, Mid-Market I-Bank IT’S EASY: COMPARE. SELECT. GET INSURED. . Investment Banking (VC, PE, M&A, IPO, INSIGHTS FROM AN INDUSTRY EXPERT QIP, PIPE)
. Institutional Equities We interviewed Divyanshu Tripathi, . Fixed Income Founder & CEO of EasyPolicy – an emerging insurtech platform. He talks solutions about his journey, regulations . Investment Advisory governing the sector, and the company’s plans going forward. Divyanshu Tripathi Founder & CEO Knowledge Banking . Dedicated sector teams with deep 1. Where is EasyPolicy today in its We are No.1 when it comes to customer journey? service. We have tie-ups with the top domain expertise insurance companies to help users with We are an online marketplace for any query, be it comparisons, helping . Ability to bring new insurance plans in India. We provide a users find the best plan for his/her ideas to the market consumer-oriented platform that needs, making changes to existing policy aggregates insurance products from – Manappuram or even claims. We have a team of more than 44+ companies and enable (2007) professionals dedicated to helping our comparison by price as well as other users in the event of a claim. So, if users iD Fresh Food criteria. We are currently into health, – want to lodge a claim, we will guide term, auto, child, investment and (2014) them through the documentation and pension products. We process over INR help liaise with the insurance company – AasaanJobs (2015) 70 Mn of premium monthly. as well. The extensive use of technology – Unbxd (2016) We are significantly differentiated in our also makes us different. Our users will go-to market strategy as compared to see all their documents on our portal and Relationship Banking the other players, we target tier II/III the policy details get distributed through cities through a combination of direct our mobile app. . Over 24 clients for B2C as well as through our partner whom we have closed network and through setting up our own multiple transactions branches across 5 zones in the country. 3. How have the recent regulatory The actual selling is done by us while the changes impacted the insurance web . Consummated partners handle transaction processing. aggregators? ~USD 1.5 Bn of Our direct B2C business is operationally The Insurance Web Aggregator profitable and we are investing in transaction value in regulation has provided clarity with developing our partner network now. repeat business respect to remuneration and has also allowed for a wider basket of products to be sold. The regulation allows all kinds Deep Distribution 2. How has EasyPolicy differentiated itself of insurance products to be sold on the from other players? . Extensive reach to web aggregators’ portals including unit over 300 funds across The next phase of growth for insurance linked insurance plans. The ticket size of in this country will come from the the policies that can be sold has been – Private Equity segment that is under-penetrated. The increased from INR 50,000 to INR 1.5 – Hedge Funds urban marketplace is crowded and is a lakh. It also allows remuneration on focus area for almost all industry players. zero-commission policies (Online term – Family Offices Our target segment is Tier II/III cities, plans for example) through rewards. In which we cater through a combination the non-life space such as health Sovereign Funds – of direct B2C and B2B2C channels insurance, motor insurance and home – Corporates through own branches and transaction insurance policies, the web aggregators processing partner’s network. are now entitled to renewal commissions as well. The regulation will go a long way in boosting the sector.
Apr 2018 – Spark Technology Newsletter 6 EXPERT SPEAK
Select Technology 4. How do you see the insurance market role in terms of increasing user Transactions evolve in the future? awareness. With new user additions being a big driver for growth, existing While regulatory changes and physical channels will have a significant advancement in technology have December 2017 role to play. While Indian consumers still influenced the development of the sector, obtain advice from agents as an Exclusive Advisor the Insurance penetration in India is still important step in purchasing insurance, To low, at ~3.5%, and there is immense we have observed that online research potential as the economy continues on its on insurance is increasing. This shift will growth trajectory. The speed of financial potentially be in line with what we have access and inclusion have picked up well Majority Stake Acquisition seen in the international markets, such recently, the insurance sector’s future as UK, wherein ~50% of users buy By success would depend on factors insurance online. It makes sense for including availability, awareness and insurance companies to shift from a technology adoption. Distribution is an more expensive agent assisted model to Undisclosed important factor to increase penetration. a more profitable online channel. As more and more people adapt to a digital lifestyle, insurers are keen on offering solutions through the digital November 2017 7. What are your plans going forward? medium and existing channels are being Exclusive Advisor aided with the help of technology. We plan to grow 4x over the next one To year with the support of our technology, partner network and mass media spend. 5. How is technology playing a critical role Our tech platform has been built for 51% Acquisition in the entire scheme of things? What is scale keeping in mind the future, and EasyPolicy doing on this aspect? does not require significant investment of going forward. We might raise an Technology is critical for creating and additional round of funding within the supporting scale in this industry. It next 1 year to amplify our growth enables reaching out to users and ~USD 24 Mn trajectory. offering insurance services in a cost efficient and customized manner. Since insurance is an annuity product, it is September 2017 important to ensure user lock-in to Exclusive Advisor increase repeat business. Technology is To core to our operations, through our proprietary technology, we can display options within seconds from multiple insurers, a process which used to take Rights Issue days with traditional broking channel. Our users get a clear picture of underlying terms, exclusions etc. We provide claims administration as well which ensures a USD 31 Mn more seamless experience for our users. The system sends renewal reminders and updates seamlessly. Our app, available on Google Play and iOS, makes purchasing August 2016 insurance easier, it allows users to view Exclusive Advisor and renew claims on the go. The app also To allows claimants to reach us at any time.
6. How do you see the digital channel Private Equity Fund Raise impacting the existing insurance From distribution channels? In India, the existing physical distribution USD 10 Mn channel continues to play an important
Apr 2018 – Spark Technology Newsletter 7 LATEST NEWS AND ANNOUNCEMENTS
Select Technology Transactions RBI in its recent Monetary Policy Report said all payment system operators will have to ensure that FinTech data related to payments is stored only in India and March 2016 STORE PAYMENTS firms would have six months to comply with it. Exclusive Advisor DATA IN INDIA: RBI Ensuring safety and security of payments data by To Monetary policy report adoption of the global standards and their continuous monitoring and surveillance is essential to reduce the risks from data breaches while maintaining a healthy pace of growth in digital payments. Private Equity Fund Raise From
Internet Undisclosed India was in the 155th position in the world in terms of mobile data consumption until last year. Today, the INTERNET country is in the first position, ahead of US and China ECONOMY TO put together. Internet mobile applications have SURGE TO $500B December 2015 emerged as a key economic driver. The internet economy is expected to increase to USD 500 Bn by BY 2022 Exclusive Advisor 2022. India becoming tech- To savvy
NITI Aayog is working to put the entire inventory of Private Equity Fund Raise Blockchain drugs made and consumed in the country on From GOVT TARGETS blockchain with an intent to crack down on counterfeit and spurious drug. The government BLOCKCHAIN TO wants to complete a “proof of concept” (PoC) Undisclosed BUST FAKE DRUGS solution by the year-end and begin implementation in Increasing use cases of 2019. blockchain tech A NITI Aoyog official; said, “The move will help the November 2015 government and pharma companies to curb the rising problem of fake drugs in the country.” Joint Advisor To US ranked on the top, followed by China and India as Macro the leaders of tech innovation, while Shanghai, Tokyo, Majority Stake Acquisition London, and New York are seen as leading tech hubs INDIA RANKS THIRD By outside Silicon Valley. IN GLOBAL TECH Thirteen percent of global technology industry leaders INNOVATION indicated India’s potential for tech breakthroughs. KPMG report USD 270 Mn
Large digital companies operating in the European November 2014 Global Tech Union, such as Alphabet Inc. or Twitter Inc., could face a TECH GIANTS TO 3% tax on their gross revenues based on where their Exclusive Advisor users are located, according to a draft proposal by the To FACE 3% TAX ON European Commission. REVENUE UNDER NEW EU PLAN According to the draft, the levy would cover companies that have annual worldwide total revenue exceeding Private Equity Fund Raise Increase in the tax bill… EUR 750 Mn (USD 920 Mn) and total taxable annual From revenue from offering digital services in the EU above EU 50 million USD 346 Mn
Source: News articles Apr 2018 – Spark Technology Newsletter 8 SOFTWARE MARKET SNAPSHOT
Select Technology A Stock Price Performance Transactions 240 220 200 June 2013 180 160 Exclusive Advisor 140 To 120 100 80
Leveraged Buyout By Diversified Infrastructure Security SaaS BI & Analytics Vertical NASDAQ USD 270 Mn
B % Returns
March 2013 1 year 3 years* Exclusive Advisor Diversified 23% 21% To Infrastructure 44% 25% Security 28% 16% SaaS 57% 31% Majority Stake Acquisition BI & Analytics 44% 14% In Vertical 30% 17% NASDAQ 21% 15% USD 182 Mn
C Trading Comparables July 2012 EV/Revenue CY18E EV/EBITDA CY18E Exclusive Advisor Diversified 4.5 x 11.7 x To Infrastructure 4.3 x 13.4 x
Select Institutional Buyers Security 4.6 x 20.4 x
SaaS 6.4 x 39.9 x Secondary Block Deal BI & Analytics 2.4 x 22.8 x USD 38 Mn Vertical 5.7 x 21.7 x
Revenue Growth % EBITDA Margin CY18E April 2011 (CY18E/CY17) Exclusive Advisor Diversified 8% 41% To Infrastructure 21% 29%
Security 10% 20% Acquisition SaaS 20% 17% Of BI & Analytics 12% 13% USD 19 Mn Vertical 14% 24%
Source: Bloomberg as on 9th April 2018, All companies calendarised to December year end. Multiples represent median of companies in sub-sector. List of companies included in Apr 2018 – Spark Technology Newsletter 9 sub-sector detailed in annexure. Stock price performance within each sub sector has been weighted for market cap * Annualized return SOFTWARE MARKET SNAPSHOT
Select Technology A Select M&A Transactions Transactions Global (excl. India): 23 deals, ~USD 12.2 Bn India: 4 deals, NA May 2010 TV EV/ Exclusive Advisor ACQUIRER TARGET DESCRIPTION (USD Mn) Rev To Global Developer of a cloud-based 6,500 21.2x application integration platform Majority Stake Acquisition Provider of online collaboration In and document management 1,261 8.0x software Provider of a health-tech platform designed to simplify USD 44 Mn 1,200 NA the administrative and clinical complexities of healthcare Developer of supply chain 1,100 9.7x October 2009 software Developer of advanced video Exclusive Advisor surveillance and analytics 960 NA To technology products Provider of a cloud infrastructure security and 300 0.1x Sale of Blue Alley compliance automation Manufacturer of fleet To 260 2.0x management systems Developer of an online USD 14 Mn employee health and benefits 155 NA platform India Provider of blockchain-based October 2009 NA NA enterprise solutions Exclusive Advisor To
B Select Financing Transactions Majority Stake Acquisition Global (excl. India): 12 deals, ~USD 220 Mn In India: 12 deals, ~USD 30 Mn (across 8 deals) TV EV/ USD 11 Mn INVESTOR TARGET DESCRIPTION (USD Mn) Rev Global Developer of desktop and October 2008 cloud-based automated web 40 NA application security scanners Exclusive Advisor Developer of an integrated To Undisclosed single talent management 35 NA platform India Majority Stake Acquisition Subscription management and 18 NA In recurring billing platform
USD 10 Mn
Source: VentureIntelligence, PitchBook TV – Transaction Value; TV rounded-off; Multiples rounded-off to one decimal; Apr 2018 – Spark Technology Newsletter 10 Global deals (excl. India) under consideration have TV >USD 10 Mn * Includes other investors TECH SERVICES MARKET SNAPSHOT
Select Technology A Stock Price Performance Transactions 200 180 August 2008 160 Exclusive Advisor 140 120 To 100 80
QIP Consulting HR Services Large Cap IT Mid Cap IT Healthcare IT Diversified BPO CRM BPO NASDAQ NIFTY IT USD 18 Mn
B % Returns December 2007 1 year 3 years* Exclusive Advisor Consulting 19% 14% To HR Services 13% 11% Large Cap IT 12% 10% Mid Cap IT 58% 18% Healthcare IT 18% 7% Minority Stake Acquisition Diversified BPO 20% 10% By CRM BPO 24% 20% NASDAQ 21% 15% NIFTY IT 16% 0% USD 9 Mn
C Trading Comparables April 2007 PE CY18E EV/EBITDA CY18E Exclusive Advisor Consulting 17.3 x 10.7 x To HR Services 22.7 x 13.7 x Large Cap IT 14.4 x 10.1 x Majority Stake Sale Mid Cap IT 19.5 x 13.1 x To Healthcare IT 35.7 x 14.8 x Diversified BPO 17.9 x 11.3 x USD 64 Mn CRM BPO 14.1 x 7.6 x Revenue Growth % EBITDA Margin CY18E April 2005 (CY18E/CY17) Advisor Consulting 4% 11% To HR Services 7% 22% Large Cap IT 5% 22% IPO Mid Cap IT 12% 16% Book Running Lead Manager Healthcare IT 14% 27%
USD 9 Mn Diversified BPO 8% 17% CRM BPO 5% 11%
Source: Bloomberg as on 9th April 2018, All companies calendarised to December year end. Multiples represent median of companies in sub-sector. List of companies included in Apr 2018 – Spark Technology Newsletter 11 sub-sector detailed in annexure. Stock price performance within each sub sector has been weighted for market cap * Annualized return TECH SERVICES MARKET SNAPSHOT
Select Non-Tech A Select M&A Transactions Transactions Global (excl. India): 8 deals, ~USD 2.5 Bn India: 4 deals, ~USD 636 Mn (across 3 deals) December 2017 TV EV/ Advisor ACQUIRER TARGET DESCRIPTION (USD Mn) EBITDA To Global Provider of BPO systems integration and user-interface 2,138 18.8x Private Equity Fund Raise platform services Provider of ediscovery and risk From 175 NA management services Provider of online backup ~USD 32 Mn system offering cloud based 146 NA data storage India Operator of hosted data centre November 2017 405 NA Hosted Data Center services business Advisor Services Business To Global business services provider of customer 230 NA experience management Provider of software services Private Equity Fund Raise including application NA NA From development and BI & Analytics Note: No financing deal activity in Tech Services ~USD 15 Mn
October 2017 Advisor To
IPO
~USD 74 Mn
July 2017 Exclusive Advisor To
Private Equity Fund Raise From
~USD 52 Mn
Source: VentureIntelligence, PitchBook TV – Transaction Value; TV rounded-off; Multiples rounded-off to one decimal; Apr 2018 – Spark Technology Newsletter 12 Global deals (excl. India) under consideration have TV >USD 10 Mn * Includes other investors INTERNET MARKET SNAPSHOT
Select Non-Tech A Stock Price Performance Transactions 380 330 March 2017 280 Exclusive Advisor 230 180 To 130 80
Private Equity Fund Raise
From Search / Online Advertising Internet Content Internet Commerce Gaming USD 100 Mn Social Media & News Platform NASDAQ
B % Returns March 2017 Exclusive Advisor 1 year 3 years* Online Advertising 31% 28% To Internet Content 53% 25% Internet Commerce 70% 49% Private Equity Fund Raise Gaming 68% 43% Social Media & News Platform 15% 23% From NASDAQ 21% 15%
USD 32 Mn C Trading Comparables EV/Revenue CY18E EV/EBITDA CY18E January 2017 Search/Online 4.6 x 12.9 x Advisor Advertising To Internet 2.4 x 14.1 x Content IPO Internet 3.0 x 15.5 x Commerce Gaming 2.9 x 13.4 x Social Media & ~USD 183 Mn 5.7 x 16.8 x News Platform Revenue Growth % EBITDA Margin CY18E (CY18E/CY17) November 2016 Search/Online 28% 30% Exclusive Advisor Advertising To Internet 16% 22% Content Internet 17% 18% Private Equity Fund Raise Commerce From Gaming 8% 29% Social Media & 15% USD 64 Mn News Platform 28%
Source: Bloomberg as on 9th April 2018, All companies calendarised to December year end. Multiples represent median of companies in sub-sector. List of companies included in Apr 2018 – Spark Technology Newsletter 13 sub-sector detailed in annexure. Stock price performance within each sub sector has been weighted for market cap * Annualized return INTERNET MARKET SNAPSHOT
Select Non-Tech A Select M&A Transactions Transactions Global (excl. India): 9 deals, ~USD 15.4 Bn India: 5 deals, NA June 2016 TV EV/ Exclusive Advisor ACQUIRER TARGET DESCRIPTION (USD Mn) Rev To Global
Developer of online lifestyle 14,600 4.8x Private Equity Fund Raise media contents From Operator of a car-sharing 258 NA platform Provider of internet-video USD 32 Mn * streaming and video- 250 2.1x compression services Provider of advertising and May 2016 audience measurement 145 NA services Exclusive Advisor Provider of an online price To comparison platform for 56 NA broadbands Provider of online gaming 51 3.2x Majority Stake Acquisition services By India Matrimonial platform for re- NA NA marriages USD 28 Mn
January 2016 B Select Financing Transactions Exclusive Advisor Global (excl. India): 2 deals, ~USD 113 Mn To India: 14 deals, ~USD 176 Mn (across 11 deals) TV EV/ INVESTOR TARGET DESCRIPTION (USD Mn) Rev Structured Capital Raise Global From Developer of a cloud-based 100 NA storage platform Provider of K-8 homeschool USD 30 Mn Undisclosed curriculum and instructional 13 NA support services India Online portal for eyewear and Sep 2015 Onwards 62 NA accessories Exclusive Advisor Online hyperlocal grocery 62 NA To platform Online portal for furniture and Select Institutional Buyers 39 NA home products Secondary Stake Acquisition In
USD 403 Mn
Source: VentureIntelligence, PitchBook TV – Transaction Value; TV rounded-off; Multiples rounded-off to one decimal; Apr 2018 – Spark Technology Newsletter 14 Global deals (excl. India) under consideration have TV >USD 10 Mn * Includes other investors FINTECH MARKET SNAPSHOT
Select Non-Tech A Stock Price Performance Transactions 200
May 2015 160 Exclusive Advisor 120 To 80
Private Equity Fund Raise
From Payments Banking & Lending Technology Information Processors / Credit Bureaus Investment Services, Software and Technology Financial Data, Content, & Analytics Insurance & Banking Tech USD 43 Mn NASDAQ
B % Returns April 2015 1 year 3 years* Exclusive Advisor Payments 18% 13% To Banking & Lending Tech 31% 20% Information Processors / Credit Bureaus 2% 13% Investment Services, Software and Tech 51% 22% Structured Capital Raise Financial Data, Content, & Analytics 28% 16% From Insurance & Banking Tech 33% 18% NASDAQ 21% 15% USD 60 Mn C Trading Comparables
EV/Revenue CY18E EV/EBITDA CY18E January 2015 Exclusive Advisor Payments 4.2 x 10.6 x To Banking & Lending Tech Information Processors / 5.7 x 16.8 x Credit Bureaus 4.1 x 12.0 x Minority Stake Acquisition Investment Services, In Software and Tech 3.4 x 15.9 x Financial Data, Content, & Analytics 6.7 x 15.2 x USD 20 Mn Insurance & Banking 4.0 x Tech 19.0 x Revenue Growth % EBITDA Margin CY18E May & Nov 2014 (CY18E/CY17) Payments Exclusive Advisor 9% 31% To Banking & Lending Tech Information Processors / 10% 26% Credit Bureaus Private Equity Fund Raise Investment Services, 7% 32% Software and Tech From 7% 27% Financial Data, Content, & Analytics 8% 44% USD 68 Mn Insurance & Banking Tech 15% 15%
Source: Bloomberg as on 9th April 2018, All companies calendarised to December year end. Multiples represent median of companies in sub-sector. List of companies included in Apr 2018 – Spark Technology Newsletter 15 sub-sector detailed in annexure. Stock price performance within each sub sector has been weighted for market cap * Annualized return FINTECH MARKET SNAPSHOT
Select Non-Tech A Select M&A Transactions Transactions Global (excl. India): 8 deals, ~USD 3.3 Bn India: 1 deal, ~USD 1 Mn August 2014 TV EV/ Exclusive Advisor ACQUIRER TARGET DESCRIPTION (USD Mn) Rev To Global Developer of trading, treasury * and risk management 1,000 NA QIP software Provider of online payment 865 NA services Provider of a cloud-based 550 NA USD 42 Mn financial analytics software Provider of free access to 385 9.8x credit scores and reports Provider of global card August 2014 processing services for the e- 334 NA Exclusive Advisor commerce market Provider of international To 112 1.2x money transfer services Developer of online payment 57 NA software QIP India Mobile P2P and group 1 NA payments application USD 65 Mn
B Select Financing Transactions July 2014 Global (excl. India): 3 deals, ~USD 82 Mn Exclusive Advisor India: 2 deals, ~USD 82 Mn To TV EV/ INVESTOR TARGET DESCRIPTION (USD Mn) Rev Global QIP Developer of blockchain Undisclosed 38 NA technology Provider of online payment services designed to facilitate 26 NA USD 83 Mn electronic supplier payments India Provider of an online payment 82 NA June 2014 and loyalty platform Advisor To
QIP
USD 100 Mn
Source: VentureIntelligence, PitchBook TV – Transaction Value; TV rounded-off; Multiples rounded-off to one decimal; Apr 2018 – Spark Technology Newsletter 16 Global deals (excl. India) under consideration have TV >USD 10 Mn * Includes other investors FROM OUR EQUITIES DESK
Institutional Equities Key snippets from some interesting notes by Spark’s Equities Team Highlights 236 Stocks under IT Industry Update – Digitally Neutral coverage Our conversations with mid-level management indicate that the outlook for FY19 is USD 1.2 Tn definitely better than FY18. There is a clear “Feel Good” factor amongst employees, Total market cap of but at the same time, participants do not expect the upper end of the NASSCOM stocks under guidance to be beaten. The BFSI vertical is unlikely to report any major growth in coverage FY19 leaving Retail, CPG, Manufacturing and Telecom verticals to drive growth, wherein, sustainability can be questioned. On top of this, consensus estimates are INR 260 Bn already factoring a revival in growth and valuation multiples for most companies are Total cash market at their life time high. The spike in large deal TCV that we witnessed in CY17, came volume in H1FY18 after a gap of 3 years of subdued spending and could revert back to its mean, and we believe this spike in spending is cyclical in nature and not structural. This undesirable 350+ scenario could lead to a repeat of FY11 and FY12, wherein, the NIFTY IT Index Number of fund outperformed NIFTY Index by 9% in FY11, but performed inline in FY12, as relationships consensus revenue estimates for FY12 were not met. globally IT Sector could be market performer on relative basis led by no change/downside “Go-to” broker risk to FY20 estimates and supported by currency tailwinds for stocks in the . Record deals awarded in CY17 was a result of subdued spending in the last two mid-market space years: Total deals awarded to vendors during CY17 reached a record high of $116bn, up 52% yoy. This was also a result of subdued spending from CY14 to CY16, wherein, deals awarded fell from $102bn in CY14 to $76bn in CY16 (14% compounded decline over CY14-16. . 4.4% and 8.5% average increase in FY19 and FY20 consensus EPS estimates: The average increase in FY19 consensus EPS estimates has been 4.4% and the same figure for FY20 stands at 8.5%, indicating that consensus has built revival in growth for FY19 as well as for FY20. Most of the stocks are now trading at one year forward P/E of 15x or above, their life time high multiples, with the exception of Cyient, KPIT and Firstsource. . INR depreciation needed to help offset the impact of investments: In line with 5th position in 2017 expectations, the margins of most IT companies expanded during the period of low All India research growth led by better cost control. However, with resumption in growth, there team would be a need for investments, similar to what is witnessed in TCS’ deal with Neilson, which is purely an outcome based deal with profit share and would require TCS to make investments. The deals won by players other than TCS could also call for investments which may have some impact on margins. The changes in sourcing requirement by clients, would also require investment in employees, Technology which according to our conversations with few participants, were held back in period of low growth. The INR depreciation again could help companies to make 24 these investments without compromising on margins. Stocks under coverage . Digital growth is strong but actual digital practice is led by product companies and requires investment in R&D: Similar to last year’s conversation, most participants ~USD 190 Bn opined that Digital revenues reported by their companies are existing revenues Total market cap being reclassified as Digital. We would agree with them, as, in our view, Digital is led of Stocks under by product companies with solutions to implement. Additionally, as per industry coverage data, Indian vendors like TCS, Infosys, HCLT, TECHM, MindTree and Hexaware still feature in traditional sourcing leaders while AWS, Google, Microsoft, Oracle, Salesforce, Adobe, Ultimate Software, Cyxtera and Mulesoft lead the As-A-Service market. Given the blurring lines between solutions and services companies, the Indian IT vendors need to make investments in R&D to come up with solutions in order to compete with startups or established digital vendors.
Source: SPARK Research
Apr 2018 – Spark Technology Newsletter 17 ANNEXURE
LIST OF COMPANIES
Software Tech Services
Diversified SaaS BI & Analytics Consulting Mid Cap IT Alphabet Inc Salesforce.com Inc Splunk Inc FTI Consulting Inc EPAM Systems Inc Microsoft Corp Workday Inc Teradata Corp Exponent Inc Luxoft Holding Inc Oracle Corp ServiceNow Inc Fair Isaac Corp Navigant Consulting Inc Mphasis Ltd IBM Veeva Systems Inc Tableau Software Inc Huron Consulting Group Syntel Inc SAP SE Ultimate Software Group Verint Systems Inc Inc Globant SA Infrastructure Shopify Inc MicroStrategy Inc ICF International Inc Mindtree Ltd VMware Inc LogMeIn Inc Hortonworks Inc CBIZ Inc Virtusa Corp Red Hat Inc Aspen Technology Inc Gridsum Holding Inc Hackett Group Inc/The Hexaware Technologies ServiceNow Inc j2 Global Inc Attunity Ltd Resources Connection Inc Ltd CA Inc Blackbaud Inc Datawatch Corp GP Strategies Corp Persistent Systems Ltd Citrix Systems Inc Paycom Software Inc Vertical CRA International Inc Perficient Inc F5 Networks Inc RealPage Inc Cerner Corp Franklin Covey Co Cyient Ltd Splunk Inc Zendesk Inc Constellation Software HR Services Larsen & Toubro Infotech Ltd Atlassian Corp PLC Cornerstone OnDemand SS&C Technologies Automatic Data Processing Inc Inc L&T Technology Services Micro Focus Veeva Systems Inc Ltd HubSpot Inc Paychex Inc LogMeIn Inc athenahealth Inc KPIT Technologies Ltd Box Inc TriNet Group Inc NetScout Systems Inc Guidewire Software Inc Rolta India Ltd RingCentral Inc Insperity Inc Software AG Blackbaud Inc HCIT New Relic Inc Barrett Business Services Nutanix Inc CoreLogic Inc Inc IQVIA Holdings Inc Paylocity Holding Corp CommVault Systems Inc Ellie Mae Inc Large Cap IT athenahealth Inc 2U Inc Pure Storage Inc Medidata Solutions Inc IBM Cerner Corp Coupa Software Inc New Relic Inc RealPage Inc Accenture PLC Medidata Solutions Inc Qualys Inc Progress Software Corp Allscripts Healthcare Tata Consultancy Services Veeva Systems Inc Callidus Software Inc Solutions A10 Networks Inc Ltd Inovalon Holdings Inc Mimecast Ltd Inovalon Holdings Inc Security Cognizant Technology Diversified BPO SPS Commerce Inc Appfolio Inc Solutions Symantec Corp Genpact Ltd Five9 Inc HealthStream Inc Infosys Ltd Check Point Software ExlService Holdings Inc Benefitfocus Inc Instructure Inc HCL Technologies Ltd Palo Alto Networks Inc Capita PLC Splunk Inc Instructure Inc Itron Networked Solutions Wipro Ltd Inc Conduent Inc Fortinet Inc Workiva Inc Capgemini SE Castlight Health Inc WNS Holdings Ltd Carbonite Inc CGI Group Inc Trend Micro Inc/Japan CRM BPO Apptio Inc Nippon Telegraph & Proofpoint Inc Teleperformance LivePerson Inc Telephone FireEye Inc SYNNEX Corp Castlight Health Inc Atos SE CyberArk Software Ltd Convergys Corp Bazaarvoice Inc Nomura Holdings Inc Imperva Inc TTEC Holdings Inc Brightcove Inc Tech Mahindra Ltd Qualys Inc Sykes Enterprises Inc ChannelAdvisor Corp Barracuda Networks Inc Transcosmos Inc Amber Road Inc Mimecast Ltd Relia Inc Marin Software Inc SecureWorks Corp Atento SA Rapid7 Inc Hinduja Global Solutions F-Secure OYJ Ltd VASCO Data Security Firstsource Solutions Ltd MobileIron Inc Zix Corp Absolute Software Corp Guidance Software Inc Quick Heal Technologies Ltd
Apr 2018 – Spark Technology Newsletter 18 ANNEXURE
LIST OF COMPANIES
Internet FinTech
Search / Online Advertising Internet Commerce Payments Information Processors / Credit Alphabet Inc Amazon.com Inc Visa Inc Bureaus Microsoft Corp Alibaba Group Holding Ltd Mastercard Inc Experian PLC Yandex NV Booking Holdings Inc American Express Co Equifax Inc Criteo SA Netflix Inc PayPal Holdings Inc Fair Isaac Corp Trade Desk Inc/The eBay Inc Discover Financial Services Acxiom Corp Rubicon Project Inc/The Expedia Inc Cielo SA Investment Services, Software and Technology Rhythmone PLC Liberty Interactive Corp QVC First Data Corp SEI Investments Co QuinStreet Inc Group Worldpay Inc Broadridge Financial Solutions Inc YuMe Inc Copart Inc Global Payments Inc SS&C Technologies Holdings Inc Marchex Inc GrubHub Inc Total System Services Inc DST Systems Inc Telaria Inc Trivago NV Worldpay Group Ltd Financial Engines Inc Marin Software Inc Cimpress NV Wirecard AG Envestnet Inc Internet Content Stamps.com Inc Square Inc Financial Data, Content, & Zillow Group Inc Shutterstock Inc GMO Payment Gateway Inc Analytics IAC/InterActiveCorp Etsy Inc EVERTEC Inc S&P Global Inc TEGNA Inc Quotient Technology Inc SafeCharge Thomson Reuters Corp GoDaddy Inc 1-800-Flowers.com Inc Western Union Co/The Moody's Corp Shutterfly Inc Overstock.com Inc Euronet Worldwide Inc IHS Markit Ltd comScore Inc ANGI Homeservices Inc FleetCor Technologies Inc Verisk Analytics Inc Web.com Group Inc Travelzoo Alliance Data Systems Corp MSCI Inc Renren Inc CafePress Inc Edenred FactSet Research Systems Inc XO Group Inc Gaming WEX Inc Dun & Bradstreet Corp/The Care.com Inc Tencent Holdings Ltd Blackhawk Network Morningstar Inc TechTarget Inc NetEase Inc Green Dot Corp Insurance/Banking Technology DR Horton Inc Activision Blizzard Inc Net 1 UEPS Technologies Inc Verisk Analytics Inc eHealth Inc Electronic Arts Inc Cardtronics PLC Guidewire Software Inc NAVER Corp Everi Holdings Inc Ebix Inc NCSoft Corp NCR Corp Crawford & Co Ubisoft Entertainment SA Ingenico Group SA Intellect Design Arena Ltd DeNA Co Ltd VeriFone Systems Inc Symbility Solutions Inc Zynga Inc PAR Technology Corp GungHo Online Entertainment Inc Banking and Lending Technology Changyou.com Ltd Intuit Inc Gree Inc Fidelity National IS Glu Mobile Inc Fiserv Inc Social Media & New Platform Jack Henry & Associates Inc Facebook Inc Temenos Group AG Snap Inc Ellie Mae Inc Twitter Inc ACI Worldwide Inc LINE Corp LendingClub Corp Pandora Media Inc Q2 Holdings Inc Yelp Inc Bottomline Technologies On Deck Capital Inc
Apr 2018 – Spark Technology Newsletter 19 DISCLAIMER
. Information provided in this document with respect to the industry have been compiled from publicly available sources, including official publications and research reports, and is given as general information and has not been independently verified by Spark Capital Advisors (India) Pvt. Ltd. (“Spark Capital”). Spark Capital has not carried out any independent verification of any information contained herein (including statements of opinion and expectation). Accordingly, Recipients should not place undue reliance on such information. The delivery of this document does not constitute a representation that the information given in this document is correct whether at the date hereof or any time subsequent to the date hereof. Spark Capital makes no representation or warranty with respect to the accuracy or completeness of any information or idea contained in this document, nor does Spark Capital undertake any obligation to update this document.
. This document does not purport to contain all the information that the Recipient may require. This document is being provided to give a general overview on the industry. Please note that all forward looking statements contained in this document have been sourced from multiple databases. No representations are being made about the correctness or achievability of these statements or their underlying assumptions.
. This document has been prepared solely for the purpose of providing information related to the Technology sector and is not to be reproduced or used for any other purpose.
. Neither Spark Capital nor the Promoters nor any of their respective affiliates, directors, officers, employees, shareholders, agents, representatives and advisors of Spark Capital shall have any liability for any loss or damage (direct or indirect) suffered by Recipients on account of their reliance on any representations (express or implied) contained in, or any omissions from this document or any information transmitted orally, in writing, electronically or in any other form to the Recipients.
. All enquiries relating to this document should be directed to Spark Capital personnel mentioned in this document.
Apr 2018 – Spark Technology Newsletter 20 TECHNOLOGY TEAM
Vikash Kabra Director and Head – Technology, IB [email protected]
Vikram Sivaraman Vice President – Technology, IB [email protected]
Aravind Ganesan Assistant Vice President – Technology, IB [email protected]
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