Software M&A Update 4Q 2019

CONTENTS REPORT HIGHLIGHTS

2 Deal Analytics . The fourth quarter of 2019 saw the fewest number of deals closed in 7 Largest Deals over three years in the Software sector 9 Public Comps 11 Industry Trend . Overall deal volume in 2019 was down 17% from 2018 13 Our Service Offerings 14 Selected Transactions . 2019 lower middle-market transaction volume in the $0 - 50MM EV 15 Our M&A Deal Leaders tranche decreased while the larger $50-500MM EV tranche saw a meaningful rise in transaction volume from 2018 Trevor Hulett Managing Director . Strategic buyers have been more active than PE investors over the [email protected] last six years, but we saw a comeback by PE in 2019, especially in total capital invested Jason Qiao Analyst . The acquisition of Carbon Black by VMware in an approximately $2.3 [email protected] billion deal represented the largest deal in Q4

For more information on R.L Hulett & Co. . Stock prices trended higher through 2019 while valuation multiples or this report please visit our website at slightly declined rlhulett.com or call us at (314) 721-0607 Page 2 Software M&A Update | 4Q 2019

Global Deal Analytics

We tracked all 729 deals in Q4 2019 across the globe, 50% of which came from the North America market. Europe was the second most active market, with 250 deals in the Software sector. These two regions witnessed 84% of the transactions reported in Q4.

250 366 62

20

0 1-100 101-300 >300 Canada: 38

United States Regions In the North American market, the West Coast region was the most active area in terms of Software M&A transactions in Q4 because of the West Coast: 88 location advantage (Silicon Valley), with 88 closed deals. Transactions of Mid Atlantic: 69 note in the West Coast include ’s acquisition of SignalFx and takeover of Livermore Software Technology. New England: 43

Great Lakes: 34 The Mid Atlantic region contributed 21% of the total deals, followed by the New England, Great Lakes, and South regions, with 43 deals, 34 South: 32 deals, and 32 deals respectively. Outside of the U.S., 38 transactions Other: 60 closed in the Canadian market in Q4 making it the second most active market in North America.

Source: PitchBook Data, data as of 02/17/2020 R.L. Hulett & Company, Inc. Page 3 Software M&A Update | 4Q 2019

Global Deal Analytics

Among the 729 completed deals in Q4 2019, 29% of the transactions were done in the Software Service subsector, making it the most active subsector in the Software space from an M&A standpoint. There were 175 closed deals in the Software Development and New Media subsector. Online Video and Financial Payment followed behind with a combined 35% of the total deals. Network Security had the fewest transactions in 2019 but it had the highest value in total capital invested, led by VMware’s $2.27B takeover of Carbon Black. Deal by Subsector

12% 29% 19%

16% 24%

Software Service Software Dev & Financial Payment Marketing & Network Security New Media Online Video

Source: PitchBook Data, data as of 02/17/2020 R.L. Hulett & Company, Inc. Page 4 Software M&A Update | 4Q 2019

Global Deal Analytics

Since 2014, we have tracked 20,487 Software Deal Volume 1,121 deals across the globe, 6,257 of which have 1,035 1,200 945 988 959 939 disclosed details on transaction size. The 883 916 904 1,000 826 792 729 following analytics represent the data that is 800 available to us on private market 600 400 transactions. 200 - Deal volume in this sector dropped to 729 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q deals in Q4, down 8% from 792 deals in Q3. 2017 2018 2019 Since 2014, total deal volume has been increasing annually at an average of 13% to a Deal Volume peak of 3,972 in 2018. 2018 was a record 5,000 year for M&A activity in the Software sector 3,779 3,972 3,523 4,000 both in terms of deal volume and value. In 3,192 3,286 2,735 3,000 2019, the total number of reported transactions decreased to 3,286, down 17% 2,000 from the prior year, and represented the 1,000 lowest level in the last four years. - 2014 2015 2016 2017 2018 2019 Aggregate transaction value in 2018 reached a peak of $232.2B for all deals disclosed, of Total Capital Invested by Deal Value which $146.9B represented larger deals 232.2 204.9 207.5 250 B ($1000M+). In 2019, capital invested held up 150.6 200 B relatively well at $207.5B, down 11% from 116.8 127.4 146.9 150 B 139.5 127.1 79.7 100 B 2018, despite a 17% drop in volume from the 63.4 62.6 27.0 32.1 15.3 21.1 22.9 25.3 50 B prior year. 2019 represented the second 30.8 35.0 33.6 36.0 48.1 40.9 7.4 8.7 9.0 9.6 10.2 7.4 - highest total over the past 6 years behind 2014 2015 2016 2017 2018 2019 2018. Capital invested in the larger middle- 0-50 50-500 500-1000 MM market tranche ($500-1000MM) grew to 1000 MM + Total $32.1B in 2019, the highest level in six years.

Source: PitchBook Data, data as of 02/17/2020 R.L. Hulett & Company, Inc. Page 5 Software M&A Update | 4Q 2019

Global Deal Analytics

Deal Volume by Deal Value

Deal volume in the lower middle market ($0- 2.4% 2.4% 3.3% 2.9% 3.6% 100% 2.6% 2.9% 2.9% 2.8% 3.1% 4.9%4.4% 21.8% 19.1% 18.4% 20.3% 22.3% $50MM) saw a significant decrease as a % of 27.1% 80% overall volume from 70.9% in 2018 to 63.6% 60% in 2019. We did, however, see a meaningful 73.2% 75.6% 75.4% 74.0% 40% 70.9% 63.6% rise in larger middle-market deals ($50MM- 20% $500MM) to 27.1% in 2019 from 22.3% in 0% 2018. Deal volume in the other two larger 2014 2015 2016 2017 2018 2019 tranches also increased slightly from prior 0-50 50-500 500-1000 MM 1000 MM + year levels.

Deal Volume by Acquirer While strategic buyers have historically 100% accounted for the majority of M&A volume 80% in the sector, we have seen a steady trend of 65.7% 63.3% 61.8% 73.4% 73.7% 71.2% 60% increasing participation by private equity 40% buyers over the last six years from 26.6% in 36.7% 38.2% 20% 2014 to 38.2% in 2019. We believe this 26.6% 26.3% 28.8% 34.3% 0% speaks to the trend of record fund raising 2014 2015 2016 2017 2018 2019 years and very high levels of dry powder for Private Equity Strategic financial sponsors to put to work over the past six years. Total Capital Invested by Acquirer 100% We have seen a similar trend in total capital 80% invested by acquirer as private equity buyers 60.4% 64.5% 65.6% 62.6% 66.2% 56.8% 60% have made up an increasing share in recent 40% years and in fact in 2019 reached the highest 39.6% 35.5% 34.4% 37.4% 33.8% 43.2% 20% level in the past six years at 43.2% of all 0% transactions reported. 2014 2015 2016 2017 2018 2019

Private Equity Strategic

Source: PitchBook Data, data as of 02/17/2020 R.L. Hulett & Company, Inc. Page 6 Software M&A Update | 4Q 2019

Valuation Multiples

21.00x 18.3x 17.2x 18.00x 14.4x 14.4x 13.5x 13.3x 12.9x 13.5x 13.4x 15.00x 12.00x 9.1x 9.00x

6.00x 2.95x 3.22x 2.73x 2.94x 2.47x 2.60x 2.21x 1.92x 2.40x 1.75x 3.00x

0.00x 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

EV/EBITDA EV/Revenue

8.00x 7.1x 6.8x 6.8x 6.2x 7.00x 5.7x 6.00x

4.5x 5.00x

3.3x 4.00x 2.4x 2.5x 3.00x 2.00x 1.00x 0.1x 0.00x 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Debt/EBITDA

30.00x 24.12x 25.00x 19.37x 17.93x 20.00x 14.72x 14.75x 13.75x 13.57x 15.00x 11.24x 10.25x 8.94x 10.00x 20.5x 14.9x 16.0x 12.8x 12.2x 12.0x 12.5x 12.9x 9.9x 9.9x 5.00x

0.00x 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Strategic EV/EBITDA PE EV/EBITDA

Source: PitchBook Data, data as of 02/17/2020 R.L. Hulett & Company, Inc. Page 7 Software M&A Update | 4Q 2019

Largest Deals

Deal Size Deal Date Company Name Investor Deal Type EV/EBITDA Target Business Description ($mm)

Carbonite Inc is a provider of cloud and hybrid 24-Dec-2019 Carbonite OpenText 1,450.0 3.58x 22.24x business continuity solutions

Flexible Architecture and Developer of SaaS-based automation 23-Dec-2019 193.5 - - Simplified Technology technology platform and expertise

18-Dec-2019 BUILDIUM RealPage 580.0 10.55x - Developer of property management software

Developer of software suites designed for the 06-Dec-2019 Innovative Aftermarket Systems iA Financial Group 720.0 - - finance and insurance departments

Developer of a suite of software applications 02-Dec-2019 Pitney Bowes Centerbridge Partners 700.0 - - for businesses

09-Nov-2019 Scout Workday 540.0 - - Developer of a SaaS RFP and sourcing platform

Developer of advanced general-purpose multi 06-Nov-2019 Livermore Software Technology Ansys 779.9 - - physics simulation software

Provider of an insider threat management 03-Nov-2019 ObserveIT Proofpoint 225.0 - - platform

Provider of a cloud-based content management 01-Nov-2019 Acquia Vista Equity Partners 1,000.0 - - platform

Provider of a pricing and profitability- 01-Nov-2019 Lender Performance Group Q2 Holdings 510.0 - - management software platform

01-Nov-2019 Onshape PTC 470.0 - - Developer of a 3D CAD platform

31-Oct-2019 Caviar DoorDash 410.0 2.16x 6.03x Developer of an online delivery application

Developer of a collaborative mobile robot with 17-Oct-2019 6 River Systems Shopify 450.0 - - a modern cloud-based software

Provider of typeface, technology, and expertise 11-Oct-2019 Monotype Imaging HGGC 825.0 3.38x 15.21x for creative applications and consumer devices

Carbon Black Inc provides security solutions in 08-Oct-2019 Carbon Black VMware 2,270.0 9.88x -34.61x the United States and internationally

08-Oct-2019 Endgame Elasticsearch 234.0 - - Developer of an endpoint security platform

Provider of quality assurance and software 07-Oct-2019 Qualitest Bridgepoint Advisers 420.0 - - testing services

Developer of enterprise value stream 04-Oct-2019 CollabNet TPG Capital 500.0 - - management solutions

Developer of cloud monitoring platform 02-Oct-2019 SignalFx Splunk 1,050.0 - - designed to accelerate problem detection

Provider of 340B software and services for 02-Oct-2019 Verity Solutions Express Scripts Holding 160.0 - - healthcare organizations

Developer of a software-defined storage 01-Oct-2019 Hedvig CommVault Systems 225.0 - - platform

Source: PitchBook Data, data as of 02/17/2020 R.L. Hulett & Company, Inc. Page 8 Software M&A Update | 4Q 2019

Leading M&A Deals

Deal Deal Synopsis Driver

Carbon Black Inc (: CBLK) was acquired by VMware (NYSE: VMW), a subsidiary of Dell EMC, for $2.27 billion. The acquisition will Security Cloud/Big enable VMware to provide a highly differentiated, intrinsic security cloud that will Data better protect enterprise workloads and clients through big data, behavioral analytics and AI.

Carbonite (NAS:CARB) was acquired by OpenText (TSE: OTEX) for $1.42 billion. The Enterprise acquisition is aimed at extending OpenText's Information cloud portfolio of enterprise information management (EIM) systems and building its Management (EIM) footprint in the small and medium-sized business (SMB) and consumer markets.

SingnalFx was acquired by Splunk (NAS: SPLK) for $1.05 billion. Data fuels the modern business, and the acquisition of SignalFx squarely puts Splunk in position as a leader in monitoring and observability at massive scale, Cloud Monitoring giving customers one platform that can monitor the entire enterprise application lifecycle.

Acquia was acquired by Vista Equity Partners through a $1 billion LBO. This follows Acquia’s recent strategic acquisitions of Mautic and Cohesion which have expanded the Company’s Web Content offerings to customers. It will enable Acquia to Management/Open grow its presence in the digital experience Source platform (DXP) market as it continues to innovate and serve the world’s most ambitious brands.

Source: PitchBook Data, data as of 02/17/2020 R.L. Hulett & Company, Inc. Page 9 Software M&A Update | 4Q 2019

Public Comps: Stock prices trend upwards over last twelve months into Q4 2019

Stock Prices 350.00

300.00

250.00

200.00

150.00

100.00

50.00

0.00 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19

NAS:MSFT NAS:AAPL NYS:ORCL NAS:ADBE NYS:CRM NAS:INTU NYS:NOW NAS:BIDU NAS:ATVI NAS:ADSK

USD in Millions except per share data Company Exch Ticker Market Cap Close Price YTD Return TTM Rev Rev Growth TTM EBITDA EBITDA Margin NAS MSFT 1,203,063 157.70 32% 129,814 14% 60,618 47% Apple NAS AAPL 1,304,765 293.65 42% 260,174 -2% 76,899 30% Oracle NYS ORCL 169,941 52.98 12% 39,583 0% 16,449 42% Adobe Systems NAS ADBE 159,654 329.81 37% 10,644 24% 3,570 34% Salesforce NYS CRM 144,262 162.64 11% 15,850 26% 2,706 17% NAS INTU 68,182 261.93 41% 6,933 13% 2,104 30% ServiceNow NYS NOW 53,246 282.32 59% 3,224 33% 237 7% NAS BIDU 43,797 126.40 -20% 15,375 4% (1,052) -7% NAS ATVI 45,650 59.42 28% 6,884 6% 2,670 39% NAS ADSK 40,367 183.46 14% 3,112 25% 384 12%

Mean 323,293 191.03 25% 49,159 14% 16,459 25% Median 106,222 173.05 30% 13,010 13% 2,688 30% High 1,304,765 329.81 59% 260,174 33% 76,899 47% Low 40,367 52.98 -20% 3,112 -2% (1,052) -7%

Source: PitchBook Data, data as of 02/17/2020 R.L. Hulett & Company, Inc. Page 10 Software M&A Update | 4Q 2019

Public Comps: Valuation multiples relatively flat over the last twelve months EV / Revenue 25.0x

20.0x

15.0x

10.0x

5.0x

0.0x Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19

NAS:MSFT NAS:AAPL NYS:ORCL NAS:ADBE NYS:CRM NAS:INTU NYS:NOW NAS:BIDU NAS:ATVI NAS:ADSK EV / EBITDA 80.0x

70.0x

60.0x

50.0x

40.0x

30.0x

20.0x

10.0x

0.0x Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19

Source: PitchBook Data, data as of 02/17/2020 R.L. Hulett & Company, Inc. Page 11 Software M&A Update | 4Q 2019

Industry Trends Growth

According to Fidelity, software sector is the largest sector in the IT industry with a market cap of $3.38T. As of Feb 2020, this sector had a 55% growth within the last twelve months. Additionally, the S&P Software & Services Select Industry Index achieved a 1-y annualized Return of 23%, which has surpassed the total growth of the IT industry by 7%. Software industry revenue is expected to grow at 10.6% in 2020.

Communications Electronic S&P Software & Services Select Industry Index Equipment, 4% Equipment, Hardware, 4% 17% 10500 9800 IT Services, 9100 21%

8400 USD, USD, Billion 7700

7000

Software, Semiconductors,

2/2019 3/2019 4/2019 5/2019 6/2019 7/2019 8/2019 9/2019 1/2020 2/2020

11/2019 12/2019 35% 20% 10/2019

Key Drivers

 Global IT speed is forecasted to grow at an average of 6% over the next four years to reach $6 trillions in 2022.

 The Software industry is more global than ever before, and the real global GDP growth should further support the software industry. If software revenue were more realistically defined to include software that is monetized with advertising or e-commerce or at least partially where software adds value in car transportation, annual revenue attributable to software is easily over one trillion dollars.

 Cloud IT Infrastructure spending is another driver of the software industry. The shift toward cloud infrastructure spending will likely accelerate during these years before slowing again in the mid-twenties.

Source: PitchBook Data, data as of 02/17/2020 ,Fidelity, S&P Global, CFRA R.L. Hulett & Company, Inc. Page 12 Software M&A Update | 4Q 2019

Industry Trends

Enterprise Cloud Migration

Some of the largest and most conservative enterprises are moving their most mission critical applications to the cloud, including apps such as those falling into the Enterprise Resource Planning (ERP) category, especially the financial modules within ERP and even more critically, the general ledger accounting module critical to closing the books each quarter. The migration is forecasted to feature less price-based competition and opportunities for higher margins, albeit likely for the largest cloud providers with the best track records for reliability, security, and consistent performance.

Increasing Degrees of Cognition

Associated with related but different concepts of Machine Learning, Deep Learning, Neural Networks and Artificial Intelligence (AI), the “cognification of software” is the most important and potentially value-adding trend in all of tech. Because it possesses both mind-boggling upside possibilities and potential for such tremendous and public disappointment, the cognification of software is likely to morph through many of the most high- magnitude hype-cycles.

Rise of Meta-Software

Meta-software is defined by CFRA, a global research institute, as that which automates or aids in the creation, testing, deployment, operation, performance and security of software applications themselves. For Uber, Expedia, Airbnb, on-line brokerages, and a growing number of companies across more and more industries, software is the means of production and if it fails, the business potentially could stop cold. This trend is not yet well understood nor is its potential fully appreciated, which adds to the upside return potential of its beneficiaries.

Source: PitchBook Data, data as of 02/17/2020 , S&P Global, CFRA R.L. Hulett & Company, Inc. Page 13 Software M&A Update | 4Q 2019

Our Service Offerings

Sell-Side Advisory: Sell your business

Sell your business for the highest price and for the best terms. At R.L Hulett, communicating the value of your business to targeted buyers and finding the best fit for your business is our forte. We strive to maintain your company’s culture and heritage even as you transition out of your business.

Buy-Side Advisory: Buy a business

Searching for acquisition targets can be a challenging and time consuming task, especially when trying to run your own business at the same time. Navigating the risks and pitfalls in negotiating valuation and deal structure can also be a daunting task for many business owners. Let our team help you minimize your risk and reduce time wasting efforts with our decades of experience in advising in both buy and sell-side M&A transactions. We utilize industry-leading M&A databases to scout for opportunities and pre-screen for “real” actionable targets so you can stay focused on what matters.

Capital Raise: Gain financial support

With nearly 40 years of experience in middle-market M&A advisory, we know how to present your deal to the right kind of investors who have the capital and the industry expertise you need to grow your business. Our team will develop a go-to-market strategy and advise on deal structure, valuation, due diligence and transition issues. Whether you are seeking capital for growth or trying to buy out other shareholders, we have the tools, expertise, and experience to execute a strategic process and find the optimal outcome to meet your objectives.

R.L. Hulett & Company, Inc. Page 14 Software M&A Update | 4Q 2019

Transaction Experience

Over nearly 40 years, R.L. Hulett & Company has completed hundreds of transactions in a wide variety of industries. Below are some our representative transactions in the Software and Tech-Enabled Services Sector. Please note that this list is not comprehensive. It is common for sellers and/or buyers to request confidentiality regarding their transactions, and R.L. Hulett & Company respects such requests as a matter of policy.

R.L. Hulett & Company, Inc. Page 15 Software M&A Update | 4Q 2019

Our M&A Deal Leaders

Mr. Hulett founded the firm in 1981 and has negotiated and completed more than 200 transactions throughout his career. He began his career as a Certified Public Accountant and practiced with Peat, Marwick, Mitchell & Co. in St. Louis as an Audit Manager and in New York as the Director of Training for Private Business. Mr. Hulett has also served as Chief Executive & Board Member for various middle market companies. As an educator, he was an adjunct professor at New York University and a tenured faculty member at Lindenwood University in St. Louis. He conducted training sessions for middle market CPA firms throughout the country for more than ten years. Mr. Hulett earned his BS/BA Cum Laude in Accounting from the University of Missouri-Columbia, and an MBA from Lindenwood University. Robert L. Hulett Chairman & Managing Director (314) 721-0607 x103 [email protected]

Mr. Hulett has led M&A transactions in a variety of industries including manufacturing/industrial, software development/IT, business services and value-added distribution for over 15 years. Prior to joining the firm, he held senior level accounting and financial management positions in both public accounting and large corporations. Mr. Hulett began his career as a Certified Public Accountant with MPP&W, a St. Louis-based public accounting firm specializing in middle market companies. He then held various management positions in internal audit and corporate accounting with a Fortune 1000 industrial manufacturing company and also spent nine years with Enterprise Rent-A-Car Company as a department manager in the Corporate Accounting group. Mr. Hulett holds his Series 62, 63 and R. Trevor Hulett, CPA 79 securities registration. Mr. Hulett earned a Bachelor’s Degree in Accounting from the Managing Director University of Missouri, Columbia. (314) 721-0607 x112 [email protected]

Mr. Vass has over 30 years of business management experience including more than 10 years as President of a highly successful consumer products manufacturing company with revenues exceeding $25 million. During this time, he not only reversed a declining sales and earnings trend, but increased both sales and operating income over 100%. In addition, he has spent over 20 years at the executive level of Vice President of Sales and Business Development. Mr. Vass also has experience in a number of other industry niches including: consumer products, commercial furniture and fixtures and metal recycling. He holds a Bachelor’s Degree in Economics from DePauw University and an MBA from the University of Michigan.

David T. Vass Director (314) 721-0607 x115 [email protected]

R.L. Hulett & Company, Inc. Page 16 Software M&A Update | 4Q 2019

About R.L. Hulett & Company

R.L. Hulett & Company is a middle-market investment bank based in St. Louis, Missouri providing financial advisory and M&A advisory services to middle market companies. Since its founding in 1981, the firm has advised in over 230 transactions in a variety of industries including manufacturing, distribution, business services, food & beverage, transportation & logistics, health care and tech-enabled services. The firm has an experienced team of M&A advisors consisting of former business owners, seasoned corporate executives, professional service firm partners, CPAs and MBAs. Our ability to deliver customized solutions to meet or exceed our clients’ expectations is what sets us apart from our competitors.

Industry Sectors Covered:

Industrial Transportation and Logistics Food & Beverage

Business Services Software/Tech-enabled Services Healthcare

Disclaimer

The data in this document has been derived from PitchBook Data and has been compiled by R.L. Hulett & Company. This document is strictly for illustrative purposes only. The data presented in this document is not comprehensive and should not be used for benchmarking, valuation, or for any other decision making. R.L. Hulett & Company accepts no responsibility for loss or damage caused by dependence on the information in this document.

R.L. Hulett & Company, Inc.