ENTERPRISE SAAS AND CLOUD Q2 2020

CONTRIBUTORS HIGHLIGHTS

David Michaels  Strong LTM M&A activity with a record 2,176 deals totaling over $150 billion Managing Director (858) 926-5950  IPO activity has picked up with six deals in the quarter [email protected]  M&A revenue multiples of 3.3x for private targets and 3.7x for public targets are down from 2018 and 2019 levels with Q2 hitting some of the lowest quarterly levels on record Teak Murphy  Enterprise SaaS & Cloud 170 stock prices jumped by 38.3%, beating the NASDAQ’s 30.6% gain as Director SaaS and technology companies quickly rebounded from Q1 drops (310) 746-5006 [email protected]  M&A activity fell in Q2’20 to 473 deals for the quarter, better than Capstone Headwaters expected, as deal activity remained surprisingly high though deals tended to be smaller transactions at weaker multiples  Public valuations have rebounded from lows relatively quickly with 55% of SaaS companies above pre-COVID valuations but the risk of another correction still looms  Capstone Headwaters expects M&A activity will remain slightly below pre-COVID levels for Q3 and will begin to rebound in Q4 unless another market correction occurs

www.capstoneheadwaters.com KEY TAKEAWAYS

M&A ACTIVITY & MULTIPLES

PUBLIC COMPANY VALUATION & OPERATING METRICS

CAPSTONE HEADWATERS SOFTWARE TEAM ENTERPRISE SAAS AND CLOUD: M&A AND VALUATION UPDATE | Q2 2020

KEY TAKEAWAYS

TRANSACTION ACTIVITY MEDIAN VALUATION MULTIPLES MEDIAN PUBLIC COMPANY METRICS

 Strong LTM M&A activity with a record  M&A revenue multiples of 3.3x for private  Stock prices jumped to 38.3%, beating the 2,176 deals totaling over $150 billion targets and 3.7x for public targets are NASDAQ’s 30.6% gain as SaaS and tech despite a recent slowdown in deal activity down from 2018 and 2019 levels with Q2 companies quickly rebounded from Q1 and decline in public deal dollar volume hitting some of the lowest quarterly drops numbers on record  Median revenue growth of 20.5% is a  IPO activity has picked up with six deals small drop but further slowdown is in the quarter as the rebounding stock  Public company median multiples jumped expected with just 12.7% growth markets provided a window for IPOs of to record levels, hitting 7.5x revenue and projected over the next twelve months well performing SaaS businesses as 31.9x EBITDA as investors flocked to SaaS  Median EBITDA margin of 13.0% is investors have flocked to tech companies businesses approaching highs but may pull back as Q2 and Q3 results come in

M&A OUTLOOK NOTABLE Q2’20 M&A TRANSACTIONS MOST ACTIVE BUYERS

 Q2’20 M&A activity remained stronger Buyer Target Segment EV

than Capstone expected, though deals Vertical Market $7.5B tended toward smaller, lower multiple deals as buyers went value hunting Vertical Market $985M  Private equity firms have been focused on $900M tuck-in acquisitions and bargain hunting Vertical Market but Capstone expects them to focus more Communications & $400M on platform investments as debt Collaboration availability returns Analytics / AI / BI $365M

 Now that public valuations have Cloud & IT $330M rebounded and most strategics have Infrastructure strong cash positions, we expect strategic Cloud & IT $325M buyers to become increasingly active Infrastructure Assets of: Communications & $244M  Many sellers chose to sit out until the Collaboration

markets recover but are now reevaluating Cloud & IT $225M given the tech rally and concerns about Infrastructure expected tax hikes Vertical Market $208M 2 ENTERPRISE SAAS AND CLOUD: M&A AND VALUATION UPDATE | Q2 2020

THE COVID-19 IMPACT

 Public software company valuations have rebounded with 55% of Enterprise SaaS & Cloud 175 stocks trading above pre- COVID levels 55% » SaaS businesses are better positioned than the broader market to survive with many segments experiencing tailwinds from Percent of Enterprise SaaS & Cloud 175 the transition to virtual workplaces trading above pre-COVID levels » Tech stocks broadly, and Enterprise SaaS in particular, has been viewed as a safe haven in the stock market with less downside and significant upside potential leading to a rush of investment pushing many stocks to new highs » With median LTM revenue of 7.5x and EBITDA multiple of 31.9x representing new highs, SaaS stocks are trading at frothy multiples that are not supported by traditional valuation methodologies 7.5X / 32X  M&A activity for Q2 remained healthy and outperformed our expectations with 473 deals in the quarter, but deal value and Public Company valuations clearly took a hit Revenue and EBITDA multiples » Deals trended smaller as Q2 median deal size fell to $12M for reported values » M&A activity was led by value hunters scooping up struggling assets as Q2 M&A revenue multiple fell to 2.3x representing the lowest level in recent history 473  Capstone Headwaters’ outlook M&A deals in the quarter » We expect to see M&A activity pick up in the second half • Well-positioned businesses that held off on launching during the shutdown will come to market • Strategics are back at peak valuations, have strong cash positions, and will get more aggressive • Private equity buyers will focus more on platform deals as the debt markets return 2.3X Q2 M&A revenue multiple – • Business owners concerned with prospects of rising tax rates will look to exit the lowest level in recent history » We remain concerned about the risk of another market correction as COVID lingers, stimulus packages expire, and unemployment remains high • Another market correction could put a damper on the expected rebound in SaaS M&A activity

Sources: CapitalIQ, 451 Group, Capstone Headwaters 3 KEY TAKEAWAYS

M&A ACTIVITY & MULTIPLES

PUBLIC COMPANY VALUATION & OPERATING METRICS

CAPSTONE HEADWATERS SOFTWARE TEAM ENTERPRISE SAAS AND CLOUD: M&A AND VALUATION UPDATE | Q2 2020

LTM M&A DOLLAR VOLUME

 LTM M&A dollar volume of $156B is down from 2019 levels despite private deals achieving a record $116B as public deals fell to $40B » Megadeals tend to drive dollar volume with 32 $1B+ transactions in the past twelve months led by London Stock Exchange’s acquisition of Refinitiv (Aug’19, $28B), Broadcom’s (Nasdaq:AVGO) acquisition of Symantec’s enterprise security business (Aug’19, $11B), and Takeaway’s (AMS:TKWY) acquisitions of JustEat (Jul’19, $6.5B) and GrubHub (Jun’20, $7.5B)  Q2’20 M&A dollar volume of $15B represents the lowest quarterly dollar volume in three years with over 70% coming from June as April and May saw huge drops in dollar volume in the depths of the shutdown  We expect dollar volume in Q3’20 to remain depressed as COVID-19 continues to impact deal making

$250,000

$200,000

$89,306 $150,000 $68,646 $40,136 $86,014

$100,000

$30,758 $23,195

$112,179 $115,504 $50,000 $106,079 $84,212 Total Transaction millions) Value (in Transaction $US Total $67,250 $66,970

$0 2015 2016 2017 2018 2019 LTM

Total Private $ Total Public $

LTM = Last Twelve Months Sources: CapitalIQ, 451 Group, Capstone Headwaters 5 ENTERPRISE SAAS AND CLOUD: M&A AND VALUATION UPDATE | Q2 2020

LTM M&A TRANSACTION VOLUME BY SEGMENT

 Transaction volume reached 2,176 deals for the past twelve months, once again setting record M&A activity » The 473 deals completed in Q2’20 is down 30% from Q1’20 deal volume but up about 5% compared to Q2’19 as deal activity remained surprisingly strong given the current economic environment » April deal volume was down to 141 deals but the market quickly bounced back with over 160 deals in May and June, though we are still well off January (250) and February (211) activity levels  Vertical Market is by far the largest segment by deal count, representing nearly 40% of transaction volume  Human Resources continues to see strong growth in transaction volume, though it may see more impact than other segments as COVID-19 related layoffs could significantly impact HR software deployments, resulting in decreased valuations that will keep sellers on the sidelines until business rebounds 2,000

1,800 822 771 1,600 781 757 754 708 1,400 153 1,200 126 151 138 158 109 124 1,000 152 141 101 71 84 129 111 61 84 69 184 Transactions 56 800 131 166 180 134 134 97 68 76 63 72 86 97 600 107 37 93 84 109 65 86 68 45 83 83 42 85 80 51 400 60 71 269 221 268 260 200 243 267 187 203 111 115 104 139 0 2015 2016 2017 2018 2019 LTM Analytics / AI / BI Cloud & IT Infrastructure Cloud Computing, Storage & Delivery Communication & Collaboration Content Creation & Management CRM & Customer Service ERP, Supply Chain & Commerce Finance & Administration

Human Resources Marketing & Advertising Vertical Market LTM = Last Twelve Months Sources: CapitalIQ, 451 Group, Capstone Headwaters 6 ENTERPRISE SAAS AND CLOUD: M&A AND VALUATION UPDATE | Q2 2020

LTM M&A TRANSACTION VOLUME BY DEAL SIZE – PRIVATE TARGETS

 Private company M&A activity once again hit a new record high for LTM, surpassing 2,100 deals for the last twelve months » Megadeal volume is strong at 21 deals over $1 billion in LTM, though that includes just one deal in Q2’20  Median transaction size of $25 million for deals with announced values represents a low for recent periods with Q2’20 median deal size a paltry $12M  Deals under $25 million represented 50% of deal volume for transactions that reported values, notably above the usual 40%

100% 8 16 13 25 28 18 21 26 23 23 16 90% 35 25 17 27 34 26 34 80% 65 47 56 50 55 70% 59 48 49 45 54 45 60% 50 64 55 50% 55 58 60 43 61 40% 101 60 60 69 30% 74

20% 143 129 117 114 10% 88 100

0% 2015 2016 2017 2018 2019 LTM Total Deals 1,873 1,807 1,783 1,985 2,011 2,146 Deals w/ Value 476 402 396 408 399 408 Median ($M) $29 $33 $36 $43 $34 $25 $0-10M $10-25M $25-50M $50-100M $100-250M $250-500M $500M-1B $1B+ LTM = Last Twelve Months Sources: CapitalIQ, 451 Group, Capstone Headwaters 7 ENTERPRISE SAAS AND CLOUD: M&A AND VALUATION UPDATE | Q2 2020

LTM M&A TRANSACTION VOLUME BY DEAL SIZE – PUBLIC TARGETS

 Public target transaction volume of 32 is on the higher end of recent levels, with 11 deals over $1 billion also near highs » Median deal size fell to $103 million, well below historic norms, as nearly two thirds of deals were below $250M » Q2’20 saw just five deals closed, the lowest level in two years, with JustEat Takeaway’s acquisition of GrubHub as the sole deal above $100M for the quarter as COVID-19 put a damper on deal activity

100%

90% 7 7 11 80% 12 14 4 70% 13 7 1 60% 5 2 2 5 50% 5 3 40% 8 2 7 1 11 30% 4 4 2 6 20% 4 3 2 2 5 2 10% 4 3 3 1 4 2 0% 1 1 1 1 2015 2016 2017 2018 2019 LTM Total Deals 30 30 34 23 33 32 Median ($M) $464 $949 $235 $1,739 $244 $103 $0-10M $10-25M $25-50M $50-100M $100-250M $250-500M $500M-1B $1B+ LTM = Last Twelve Months Sources: CapitalIQ, 451 Group, Capstone Headwaters 8 ENTERPRISE SAAS AND CLOUD: M&A AND VALUATION UPDATE | Q2 2020

MEDIAN LTM REVENUE MULTIPLES – PRIVATE TARGETS

 Median LTM multiple of 3.3x represents a significant step down from 2018 and 2019 levels » The 25th-75th percentile spread remains quite broad and shows that while high multiple deals continue to get done there is a higher of low multiple deals with many buyers value hunting for businesses struggling through the pandemic or completing small tuck-in acquisitions at lower multiples  Q2’20 revenue multiple of 2.3x is the lowest quarterly median revenue multiple in recent years, with only one other quarter having dipped below 3x  Valuations are likely to improve from the Q2 lows but will remain under some pressure for the remainder of 2020 » Strategic buyers' valuations have rebounded which should help them be more aggressive than they were in Q2 » Private equity is very active but valuations remain impacted by lack of debt availability and investors are cautious on businesses experiencing heavier impacts

6.0x

5.0x 5.0x 4.4x 4.0x 4.0x 3.8x 3.8x 3.3x

3.0x

2.0x Median Revenue MultipleRevenue Median

1.0x

0.0x 2015 2016 2017 2018 2019 LTM 25th % 2.0x 2.3x 2.2x 2.9x 2.1x 1.6x

75th % 6.1x 6.2x 6.6x 9.9x 7.9x 7.1x LTM = Last Twelve Months Sources: CapitalIQ, 451 Group, Capstone Headwaters 9 ENTERPRISE SAAS AND CLOUD: M&A AND VALUATION UPDATE | Q2 2020

MEDIAN LTM REVENUE MULTIPLES – PUBLIC TARGETS

 Median LTM multiple 3.7x is a step down from 2018 and 2019, though multiples on deals above $100M have held up better  Q2’20 median revenue multiple of 1.7x is the lowest level in three years  Private equity aggressively acquired public SaaS & cloud companies in LTM, accounting for four of the eleven deals over $1B at a median revenue multiple of 5.4x

9.0x 8.1x 8.0x

7.0x

6.0x 5.5x 5.3x

5.0x 4.4x 4.2x 4.0x 3.7x 3.7x 3.8x 3.7x 3.2x 3.0x 2.5x Median Revenue MultipleRevenue Median 2.3x 2.0x

1.0x

0.0x 2015 2016 2017 2018 2019 LTM 25th % 1.7x 2.5x 1.1x 3.4x 2.9x 2.9x 75th % 4.7x 6.3x 3.9x 8.4x 6.5x 5.5x

All Deals $100M+ Deals LTM = Last Twelve Months Sources: CapitalIQ, 451 Group, Capstone Headwaters 10 ENTERPRISE SAAS AND CLOUD: M&A AND VALUATION UPDATE | Q2 2020

MEDIAN REVENUE MULTIPLES BY SEGMENT – LAST 5 YEARS

 Median revenue multiples across SaaS & Cloud segments for deals in the past five years range from 2.1x to 6.1x, with a median of 3.9x » Cloud & IT Infrastructure achieved the highest median multiple of 6.1x » Finance & Administration median multiple of 5.1x is buoyed by its more recent transition to the cloud » Analytics/AI/BI is exploding as new technologies seek to leverage the wealth of enterprise data to drive business optimization, driving strong valuations » Segments such as Marketing & Advertising and CRM & Customer Service that made the transition earlier have seen multiples compress as those segments have experienced consolidation and commoditization

7.0x 6.1x 6.0x 5.1x 4.8x 5.0x 4.0x 3.9x 3.9x 4.0x 3.7x 3.1x 2.7x 3.0x 2.5x 2.2x 2.1x

2.0x Median Revenue Median Revenue Multiple 1.0x

0.0x

Sources: CapitalIQ, 451 Group, Capstone Headwaters 11 ENTERPRISE SAAS AND CLOUD: M&A AND VALUATION UPDATE | Q2 2020

HIGHEST REVENUE MULTIPLE TRANSACTIONS FOR LTM

LTM Enterprise Premium to Ann. Date Buyer Target Segment Target Description Revenue Value 1 Mo Prior Multiple

Provides lending sales automation and performance management, customer analytics, and pricing SaaS for 10/01/19 CRM & Customer Service $510M 25.5x NA the Commercial Banking sector globally.

Provides SaaS for real-time cloud performance monitoring and observability for infrastructure, 08/21/19 Cloud & IT Infrastructure $1,050M 21.0x NA microservices, and applications.

Provides unmanaged and IoT devices cybersecurity monitoring software enabling users to discover 01/06/20 Cloud & IT Infrastructure $1,100M 18.3x NA managed, unmanaged, and IoT devices on or off a network, analyze endpoint behavior, and detect threats.

Provides cybersecurity solutions to defend web and mobile applications from malicious automated cyber- 12/13/19 Cloud & IT Infrastructure attacks. Its ShapeShifter Elements delivers real-time enforcement of security countermeasures and Shape $1,028M 17.1x NA Protection Manager provides cloud-based management.

Provides cloud-based accounts receivable automation software and integrated payment solutions, 12/13/19 Finance & Administration integrating with companies’ accounting or ERP systems to deliver electronic invoice presentment and $100M 17.1x NA payment, cash application, collections management, collaboration, and accounts receivable insights.

ERP, Supply Chain & Provides multi-channel e-commerce SaaS that enables merchants to build and connect shopping 10/21/19 $145M 16.1x NA Commerce experiences on the web, smartphone, tablet, and point-of-sale (POS) systems.

Provides operational technology network cybersecurity risk management software for industrial control 12/02/19 Cloud & IT Infrastructure $78M 15.6x NA system environments.

Provides AI-based IoT device and threat identification management SaaS consisting of automated device 09/04/19 Cloud & IT Infrastructure discovery, recognition and classification, behavioral analysis and risk assessment, network segmentation, $75M 15.0x NA analytics, and reporting.

Provides cloud security posture management (CSPM) and compliance SaaS for enterprises. Software 04/28/20 Cloud & IT Infrastructure provides features for unified cloud visibility and monitoring, risk assessment and auditing, and identity and $145M 14.5x NA access management (IAM) governance.

Provides multi-cloud infrastructure management and automation SaaS for Amazon Web Services (AWS), 06/03/20 Cloud & IT Infrastructure Google Cloud, and Azure users. Software provides features for managing application $325M 10.8x NA performance through predictive algorithms, data migration, and application scaling automation.

Excludes deals with Target company revenue less than $5M Sources: CapitalIQ, 451 Group, Capstone Headwaters 12 ENTERPRISE SAAS AND CLOUD: M&A AND VALUATION UPDATE | Q2 2020

NOTABLE M&A TRANSACTIONS FOR Q2’20

LTM Enterprise Premium to Ann. Date Buyer Target Segment Target Description Strategic Rationale Revenue Value 1 Mo Prior Multiple

Provides an online and mobile platform for restaurant pick-up Just Eat gains access to the lucrative US Restaurant market 06/10/20 Vertical Market $7,530M 5.6x 60.4% and delivery orders in the . as the stay-at-home economy continues to grow.

Mastercard continues its move into the personal financial Provides personal financial management and consumer 06/23/20 Vertical Market management space to complement its existing core $985M NA NA financial wellness platform solutions. products.

Develops and markets public transport application that Mobileye advances its autonomous driving systems’ 05/04/20 Vertical Market combines transit data with live inputs from the crowd, gives capabilities through the acquisition of the transit data $900M NA NA snapshot of what the trip will be like, and suggests routes. application.

Verizon gains access to Blue Jeans’ videoconferencing and Communications & Provides videoconferencing, webinar, and online event 04/16/20 webinar software, as it enters into the quickly expanding $400M 4.0x NA Collaboration management SaaS for businesses. Videoconferencing market.

National Instruments continues to expand its product Provides product analytics solutions for automotive, 06/02/20 Analytics / AI / BI offerings to the Automotive, Semiconductor, and $365M 7.2x NA semiconductor, and electronics companies. Electronics industries.

Keysight Technologies expands its software testing Cloud & IT Provides mobile and web automated application testing and 05/27/20 automation capabilities through its acquisition of $330M 8.7x NA Infrastructure quality assurance software for businesses. Eggplant as it seeks to gain market share.

Provides multi-cloud infrastructure management and NetApp’s acquisition of Spot allows it to further increase Cloud & IT 06/03/20 automation SaaS through features for managing application its cloud data services offerings in the areas of compute $325M 10.8x NA Infrastructure performance, data migration, and scaling automation. management and cost optimization. Digital Interconnect Sinch continues to expand its messaging capabilities and Assets of: Communications & 05/05/20 SAP Digital Interconnect comprises a messaging technology. market share through its acquisition of SAP’s Digital $244M 0.7x NA Collaboration Interconnect assets.

CollabNet Versionone continues to establish itself as a Cloud & IT Provides web, desktop, and mobile application anti-tampering, 04/15/20 major player in the application development space by $225M 5.6x NA Infrastructure anti-malware and code protection software for businesses. acquiring Arxan.

Change Healthcare expands further into the Consumer Provides outpatient pharmacy management SaaS for 06/01/20 Vertical Market Retail market through its acquisition of PDX, a provider of $208M NA NA pharmacies and health systems in North America. outpatient pharmacy management SaaS.

Includes largest transactions based on Enterprise Value Parenthesis indicate a negative number Sources: CapitalIQ, 451 Group, Capstone Headwaters 13 ENTERPRISE SAAS AND CLOUD: M&A AND VALUATION UPDATE | Q2 2020

MOST ACTIVE SAAS & CLOUD BUYERS – LAST 2 YEARS

SaaS/Cloud Transactions Company Date Company Value Date Company Value Date Company Value 06/10/20 Flash Networks Ltd. NA 01/06/20 Lifecycle Software Ltd. NA 05/08/19 Uniphy Health Systems LLC NA 05/28/20 Leverance Inc. (LandDev assets) NA 12/10/19 NCG Inc. NA 04/25/19 Triple E Technologies, LLC NA 05/20/20 Topicus B.V. NA 11/27/19 Informatique Nouvelle Technologie Inc. NA 04/23/19 TORCHx NA 05/19/20 TUNE, Inc. NA 10/15/19 wiko Bausoftware GmbH NA 04/16/19 BEC Legal Systems NA 05/18/20 CTI Soft, S.L. NA 10/14/19 Worldwide Chain Stores Inc. NA 04/01/19 Mortgage Builder Inc. NA 05/06/20 Stratec Biomedical Ltd. NA 10/10/19 Microcash Retail B.V. NA 03/11/19 Green 4 Solutions Ltd. NA 04/07/20 KURIER TECNOLOGIA EM INFORMAÇÃO NA 10/09/19 IndiCater NA 01/31/19 Haystack Informatics, Inc. NA 04/02/20 Virtual Properties, Inc. NA 10/01/19 mquadr.at software engineering NA 01/25/19 Distillery Solutions, Inc. NA 03/19/20 Collab - SoluCOes InformAticas $6M 08/28/19 Pulse Systems Inc. NA 01/08/19 Flairbase, Inc. NA 03/03/20 Interica Ltd. NA 08/19/19 Assets of SmartZip Analytics Inc. NA 12/19/18 Financial Risk Solutions Ltd. NA 03/02/20 ProShip Inc. $15M 08/15/19 Point of Sale Enterprise, LLC. NA 10/12/18 Greycon Ltd. NA 58 deals 02/27/20 MUSAC Ltd. NA 08/01/19 Akuiteo SAS NA 10/01/18 Coreworx Inc. NA 02/21/20 Informatique Côté Coulombe Inc. NA 08/01/19 Salvia Développement SAS NA 09/20/18 Helm Operations NA 02/10/20 Bibliocommons Inc. NA 07/17/19 MDS Global NA 09/13/18 Nokia Corporation (IP video business) NA 02/10/20 Club Caddie, Inc. NA 07/16/19 Windward Software NA 08/02/18 Aleyant Systems, LLC NA 02/10/20 Doc-tor.com LLC NA 06/24/19 CORVID PayGate Ltd. NA 08/01/18 Ez-Runner Systems Ltd NA 02/10/20 Industrios Software, Inc. NA 05/31/19 Aurum NA 07/10/18 Dispatching Solutions, Inc NA 02/06/20 Advanced Systems Consultants Inc. NA 05/22/19 Assets of Emerson Software Solutions, Inc. NA 07/10/18 E-ISG Asset Intelligence Inc. NA 01/09/20 Ping Pong AB NA 05/21/19 Abak Software Inc. NA 01/07/20 DealerNet NA 05/20/19 Cake Marketing UK Ltd. $20M

06/22/20 Cyber X, Inc. NA 09/04/19 Movere, Inc NA 05/28/19 Drawbridge Inc. NA 06/18/20 ADRM Software, Inc. NA 08/19/19 jClarity Ltd NA 02/04/19 DataSense of BrightBytes Inc. NA 05/19/20 Softomotive Ltd. NA 08/05/19 PromoteIQ $60M 01/24/19 Citus Data Inc. NA 05/14/20 Networks Ltd. NA 08/05/19 SpotFront, Inc. NA 11/19/18 FSLogix Inc. NA 03/26/20 Affirmed Networks NA 07/29/19 BlueTalon, Inc. NA 10/08/18 Glint Inc. $400M 18 deals 10/21/19 Mover Inc. NA 06/17/19 Good Software LLC NA 09/13/18 Lobe Artificial Intelligence, Inc. NA

04/15/20 Castleton Technology plc $103M 07/31/19 Link Systems, Inc. NA 12/05/18 John Stephen Consultancy Limited NA 03/31/20 Orchard Information Systems Ltd. NA 07/31/19 ProLease $75M 12/05/18 Thesaurus Technology NA 01/13/20 InterNETalia Ltd NA 06/20/19 Dynamic Lead Solutions LLC NA 10/10/18 IPM Software Inc. NA 01/08/20 Lindsey and Company, Inc. NA 02/07/19 CTM Software Corp. NA 07/12/18 CML Software Limited NA 08/01/19 Rockend Pty Ltd NA 01/09/19 Rental History Reports NA 07/04/18 PropSys Solutions NA 16 deals 07/31/19 LEVERTON Corporation $10M

Sources: CapitalIQ, 451 Group, Capstone Headwaters 14 ENTERPRISE SAAS AND CLOUD: M&A AND VALUATION UPDATE | Q2 2020

MOST ACTIVE SAAS & CLOUD BUYERS – LAST 2 YEARS

SaaS/Cloud Transactions Company Date Company Value Date Company Value Date Company Value 03/04/20 Tripleseat Software LLC NA 03/22/19 PlanSource Benefits Administration, Inc. NA 11/29/18 Wrike Inc. $800M 11/18/19 Accelya Holding World S.L. NA 02/07/19 in4mo Oy NA 11/11/18 Apptio Inc. $1,940M 11/18/19 Sonatype Inc. NA 01/14/19 QuickBase Inc. $1,000M 10/02/18 Starhome BV NA 09/24/19 Acquia Inc. $1,000M 12/24/18 MINDBODY Inc. $1,750M 08/15/18 iCIMS Inc. NA 09/11/19 Vertice Technologies, LLC $500M 12/11/18 7Park Data, Inc. NA 08/07/18 Alegeus Technologies LLC $750M 16 deals 05/29/19 Black Mountain Systems, LLC NA

06/02/20 Exostar LLC NA 05/28/19 Cority NA 11/05/18 CA Veracode Inc. $950M 03/31/20 Command Alkon Inc. NA 02/25/19 ConnectWise, Inc. NA 09/04/18 Apttus Corporation NA 12/04/19 Instructure, Inc. $2,011M 02/12/19 Ellie Mae, Inc. $3,683M 08/13/18 Quorum Business Solutions, Inc. NA 14 deals 10/14/19 Sophos Plc $3,820M 02/07/19 Aucerna NA 07/10/18 Centrify Corporation NA 10/08/19 International Decision Systems NA 11/30/18 PEC Safety Operations LLC $225M

12/09/19 Giftpro Limited NA 06/20/19 Intelligentgolf Limited NA 03/27/19 Circdata Limited NA 08/29/19 BrightOffice Limited NA 06/04/19 Decisions Express Ltd NA 02/06/19 APT Solutions Ltd NA 08/16/19 e-dataware Ltd NA 05/16/19 instaGiv Ltd NA 01/16/19 Silverbear Ltd. NA 08/01/19 Protech Computer Systems Limited NA 05/03/19 Crafty Clicks Limited NA 11/13/18 Miller Technology Limited NA 13 deals 07/03/19 Trillium Systems Limited NA

05/12/20 Nmbrs B.V. NA 12/16/19 Intelligent IT SRL NA 02/11/19 Roxit B.V. NA 05/12/20 Zetech S.A. NA 12/16/19 S.C. Intelligent IT S.R.L. NA 10/16/18 Triangel Solutions AS NA 04/08/20 Specter AB NA 12/03/19 Inyett AB NA 10/08/18 KBOSS.hu Kft NA 02/20/20 OnGuard International Holding BV NA 11/19/19 OneStop Reporting AS NA 09/11/18 Merit Tarkvara AS NA 13 deals 01/16/20 Circle Software Group B.V. NA

02/19/20 Cornerstone Technology B.V. NA 11/18/19 CloudSimple Inc. NA 02/19/19 Alooma Ltd. NA 01/14/20 AppSheet Inc. NA 08/15/19 Socratic, Inc. NA 11/27/18 cwist Inc. NA 01/14/20 Pomo Search Ltd. [dba Pointy] NA 07/09/19 Elastifile Ltd. NA 10/02/18 Terraform Labs Inc. NA 11 deals 12/12/19 Latent Logic Ltd NA 06/06/19 Looker Data Sciences, Inc. $2,600M

02/25/20 Vlocity Inc. $1,330M 05/06/19 Bonobot Technologies Ltd. NA 01/14/19 roundCorner, Inc. NA 02/03/20 Evergage Inc. NA 04/17/19 MapAnything, Inc. NA 10/05/18 Rebelmail Inc. NA 08/07/19 ClickSoftware Technologies Ltd. $1,350M 04/17/19 Salesforce.org $300M 07/16/18 Datorama Inc. $758M 11 deals 06/10/19 Tableau Software, Inc. $17,364M 01/28/19 Griddable Inc. NA

06/04/20 Lastline Inc. $160M 08/14/19 Veriflow Systems NA 05/15/19 BirRock Inc. NA 05/13/20 Octarine Inc. NA 07/25/19 Uhana Inc. NA 02/05/19 AetherPal Inc. NA 01/21/20 Nyansa Inc. NA 07/18/19 Bitfusion.io NA 11/06/18 Heptio Inc. NA 11 deals 08/21/19 Intrinsic NA 06/13/19 Avi Networks NA

Sources: CapitalIQ, 451 Group, Capstone Headwaters 15 KEY TAKEAWAYS

M&A ACTIVITY & MULTIPLES

PUBLIC COMPANY VALUATION & OPERATING METRICS

CAPSTONE HEADWATERS SOFTWARE TEAM ENTERPRISE SAAS AND CLOUD: M&A AND VALUATION UPDATE | Q2 2020

ENTERPRISE SAAS & CLOUD 175 PUBLIC COMPANY UNIVERSE – PART 1

Analytics / AI / BI

Cloud & IT Infrastructure

Cloud Computing, Storage & Delivery

Communication & Collaboration

Content Creation & Management

CRM & Customer Service

17 ENTERPRISE SAAS AND CLOUD: M&A AND VALUATION UPDATE | Q2 2020

ENTERPRISE SAAS & CLOUD 175 PUBLIC COMPANY UNIVERSE – PART 2

ERP, Supply Chain & Commerce

Finance & Administration

Human Resources

Marketing & Advertising

Vertical Markets

Software Conglomerates 18 ENTERPRISE SAAS AND CLOUD: M&A AND VALUATION UPDATE | Q2 2020

Q2 2020 ENTERPRISE SAAS & CLOUD IPOS

IPO Date Company Segment Description IPO Details Offering Amount 350.0 Mkt Cap at 6/30 4,498.7 LTM Revenue 86.6 Agora, Inc. provides Real-Time Engagement Platform-as-a-Service (RTE- Cloud Computing / Offer to Open + 125.0% EV/Rev Mult 50.2x LTM EBITDA 3.4 01/25/20 PaaS) that allows developers with software tools to embed real-time Storage Open to Close + 12.2% EV/EBITDA Mult 1,285.8x Gross Margin 68.4% video, voice, and messaging functionalities into applications. NasdaqGS:API Open to 6/30 - 1.8% EBITDA Margin 3.9%

Exasol develops database for analytics and data warehousing worldwide. Offering Amount 84.5 Mkt Cap at 6/30 270.1x LTM Revenue 26.3% The company also offers cloud analytics, business intelligence (BI) Offer to Open + 46.9% EV/Rev Mult 10.3x LTM EBITDA (12.2) 05/25/20 Analytics / AI / BI acceleration, BI to data analytics, analytics on big data, enterprise data Open to Close (9.0)% EV/EBITDA Mult NA Gross Margin (14.1)% XTRA:EXL warehousing, and data science solutions. Open to 6/30 (17.0)% EBITDA Margin (46.5)%

Offering Amount 510.0 Mkt Cap at 6/30 5,777.2x LTM Revenue 635.6% Kingsoft Cloud offers public cloud services to customers in various Cloud Computing / Offer to Open + 19.8% EV/Rev Mult 8.7x LTM EBITDA (69.9) 05/07/20 verticals, and also provides advertising placement agency services and Storage Open to Close 17.0% EV/EBITDA Mult NA Gross Margin 2.7% AIoT solutions. NasdaqGS:KC Open to 6/30 + 54.7% EBITDA Margin (11.0)%

Offering Amount 210.9 Mkt Cap at 6/30 878.7 LTM Revenue 41.3 Pexip delivers a video-first meeting platform. Its platform simplifies video Communication & Offer to Open + 42.2% EV/Rev Mult 21.2x LTM EBITDA 10.3 05/14/20 communication across borders, businesses, and platforms, enabling Collaboration Open to Close - 2.8% EV/EBITDA Mult 84.8x Gross Margin 49.3% everyone to be seen, heard, and included. OB:PEXIP Open to 6/30 - 1.4% EBITDA Margin 25.0%

Hangzhou Raycloud Technology offers various products and services that Offering Amount 61.2 Mkt Cap at 6/30 3,311.6 LTM Revenue 65.3 ERP, Supply Chain & help e-commerce merchants to do business, such as e-commerce SaaS Offer to Open + 168.6% EV/Rev Mult 49.3x LTM EBITDA 10.4 04/29/20 Commerce products and supporting hardware, as well as CRM SMS and operation Open to Close + 31.2% EV/EBITDA Mult 310.4x Gross Margin 63.9% SHSE:688365 services. Open to 6/30 + 101.6% EBITDA Margin 15.9%

ZoomInfo Technologies operates a cloud-based go-to-market intelligence Offering Amount 934.5 Mkt Cap at 6/30 7,662.7 LTM Revenue 340.9 CRM & Customer platform that helps sales and marketing professionals to identify target Offer to Open + 90.5% EV/Rev Mult 26.1x LTM EBITDA 94.8 06/03/20 Service customers, pinpoint the right decision makers, and obtain continually Open to Close - 15.0% EV/EBITDA Mult 93.8x Gross Margin 85.6% NasdaqGS:ZI updated predictive lead and company scoring. Open to 6/30 + 27.6% EBITDA Margin 27.8%

Source: CapitalIQ 19 ENTERPRISE SAAS AND CLOUD: M&A AND VALUATION UPDATE | Q2 2020

MEDIAN STOCK PERFORMANCE – SAAS & CLOUD 170

 SaaS & Cloud 175 jumped 38.3% in Q2, quickly rebounding from the February COVID-19 sell-off and outperforming the NASDAQ for the quarter » ERP, Supply Chain & Commerce and Analytics/AI/BI lead growth, though both were among the hardest hit during Q1 so growth is more recapturing prior market overreaction » Human Resources 51.7% rebound still leaves the segment down 13.3% LTM as areas like hiring and payroll are heavily impacted and businesses aren’t investing in new systems  While SaaS & Cloud 175 are typically better positioned than most businesses to survive stay-at-home, or even benefit, it is surprising to see 55% of companies are above pre-COVID valuations, driving concerns of a double dip

Stock Performance Stock Performance - 3/31 - 6/30

120% ERP, Supply Chain & Commerce 69.5%

98.2% 101.7% Analytics / AI / Business Intelligence 63.4% 100% Marketing & Advertising 63.0% Finance & Administration 58.0% 80% 72.2% Human Resources 51.7% 63.8% CRM & Customer Service 42.6% 60% SaaS & Cloud 175 38.3% Cloud & IT Infrastructure 30.1% 38.3% 40% 30.6% Communication & Collaboration 29.6% 25.6% Vertical Market 28.9% 20% Content Creation & Management 25.0% 10.2% Cloud Computing / Storage 22.1% 0% Software Conglomerates 19.1% Last 5 Years Last 3 Years LTM 3/31 - 6/30 0% 20% 40% 60% 80% SaaS & Cloud 175 NASDAQ

LTM = Last Twelve Months Source: CapitalIQ 20 ENTERPRISE SAAS AND CLOUD: M&A AND VALUATION UPDATE | Q2 2020

MEDIAN LTM REVENUE MULTIPLES – SAAS & CLOUD 170

 The median LTM revenue multiple of 7.5x marks a sharp increase and new record level, bouncing back from the drop to 5.4x to end Q1 » While some businesses are benefiting from the shift to cloud/virtual, many companies have had little boost or slowdowns yet are experiencing rising multiples as investors are flocking to the perceived safety and growth potential of SaaS businesses relative to other investments despite inflated valuations » ERP, Supply Chain & Commerce and Communication & Collaboration have jumped from 6-6.5x last quarter as e-Commerce and digital communications thrive » Human Resources is the only segment currently trading at multiples meaningfully below year end metrics as the disruption to employment will reduce company investment in solutions in the near term though some opportunities around remote workforce management and employee engagement are certainly emerging

LTM Enterprise Value / Revenue LTM Enterprise Value / Revenue

8.0x 7.5x Finance & Administration 14.6 x

ERP, Supply Chain & Commerce 13.0 x 7.0x 6.7x Communication & Collaboration 10.7 x 6.0x 5.8x 6.0x Analytics / AI / Business Intelligence 10.3 x

4.8x Marketing & Advertising 9.1 x 5.0x 4.8x CRM & Customer Service 9.0 x

4.0x Cloud & IT Infrastructure 7.5 x

SaaS & Cloud 175 7.5 x 3.0x Vertical Market 6.2 x

2.0x Software Conglomerates 5.4 x Human Resources 5.3 x 1.0x Cloud Computing / Storage 5.2 x

Content Creation & Management 4.7 x 0.0x 2015 2016 2017 2018 2019 6/30/20 0x 2x 4x 6x 8x 10x 12x 14x 16x Based on data available as of 6/30/20 Based on data available as of 6/30/20

LTM = Last Twelve Months Source: CapitalIQ 21 ENTERPRISE SAAS AND CLOUD: M&A AND VALUATION UPDATE | Q2 2020

MEDIAN LTM EBITDA MULTIPLES – SAAS & CLOUD 170

 The median LTM EBITDA multiple of 31.9x is a huge jump to a record level, rebounding significantly from Q1’s drop to 21.3x and nearly double 2015’s multiple » The big movement is driven by the combination of increasing valuations with a drop in EBITDA across the SaaS & Cloud 175 » Investors are clearly looking past weaker near-term earnings and are willing to pay up for businesses with stronger prospects to survive or thrive in our new normal, with the presumption that earnings will return once the environment normalizes

LTM Enterprise Value / EBITDA LTM Enterprise Value / EBITDA

35x Finance & Administration 142.0 x 31.9x CRM & Customer Service 82.6 x 30x 29.1x Analytics / AI / Business Intelligence 64.2 x ERP, Supply Chain & Commerce 58.1 x 25x 23.6x 21.4x Human Resources 53.1 x Communication & Collaboration 20x 18.0x 49.4 x 17.0x SaaS & Cloud 175 31.9 x 15x Marketing & Advertising 31.9 x Cloud & IT Infrastructure 26.6 x 10x Vertical Market 25.9 x Cloud Computing / Storage 22.1 x 5x Content Creation & Management 20.9 x Software Conglomerates 14.2 x 0x 2015 2016 2017 2018 2019 6/30/20 0x 50x 100x 150x

Based on data available as of 6/30/20 Based on data available as of 6/30/20 Companies with EBITDA Margin <7.5% and EBITDA multiple above 20x deemed NA Companies with EBITDA Margin <7.5% and EBITDA multiple above 20x deemed NA

LTM = Last Twelve Months Source: CapitalIQ 22 ENTERPRISE SAAS AND CLOUD: M&A AND VALUATION UPDATE | Q2 2020

MEDIAN REVENUE GROWTH – SAAS & CLOUD 170

 Median revenue growth slipped to 20.5%, the lowest level since 2015 as COVID-19 impacted performance for many companies  Analysts expect weak growth over the next twelve months, projecting median growth of just 12.5%, down from 17.5% at the end of 2019 » Growth metrics are murky as many analysts, following CEO’s lead, have been slow to provide updated forecasts in an impossible predict economy where the full impact of the shutdown is still revealing itself and the prospect of the second wave resulting in more business closures is still a big question mark  Communication & Collaboration and Analytics/AI/BI are the few bright spots showing increased growth projections relative to 2019 year-end metrics. ERP, Supply Chain & Commerce and Marketing & Advertising have seen growth projections cut by more than 10% while Human Resources has also seen a sizable drop

Revenue Growth vs Prior 12 Mos NTM / LTM Revenue Growth Projection

30% Communication & Collaboration 26.8% 20.1% Finance & Administration 16.0% 25% 22.5% 22.6% ERP, Supply Chain & Commerce 15.7% 21.2% 20.5% Human Resources 14.3% 20% 19.2% CRM & Customer Service 13.7% Marketing & Advertising 12.8% 15% 12.7% Analytics / AI / Business Intelligence 12.8% SaaS & Cloud 175 12.7% 10% Cloud Computing / Storage 9.5% Content Creation & Management 8.3% 5% Cloud & IT Infrastructure 8.1% Vertical Market 7.2% 0% Software Conglomerates 1.8% 2015 2016 2017 2018 2019 LTM NTM 6/30/20 6/30/20 0% 5% 10% 15% 20% 25% Based on data available as of 6/30/20 Based on data available as of 6/30/20

LTM = Last Twelve Months Source: CapitalIQ 23 ENTERPRISE SAAS AND CLOUD: M&A AND VALUATION UPDATE | Q2 2020

MEDIAN EBITDA GROWTH – SAAS & CLOUD 170

 Median EBITDA growth slipped to 18.9% over the past twelve months » Much of the COVID-19 impact will come later in the year leading to projected growth of just 7.5% of the next twelve months » We expect to see NTM growth projections shift significantly as companies announcing Q2 provide better insight into COVID-19 impact and CEOs may have more confidence providing forecasts for the rest of the year

EBITDA Growth vs Prior 12 Mos NTM / LTM EBITDA Growth Projection

30% Finance & Administration 33.4% 25.4% Human Resources 26.5% 25% CRM & Customer Service 16.9% 21.0% 20.0% Communication & Collaboration 14.9% 20% 19.0% 18.9% Content Creation & Management 13.3% Cloud Computing / Storage 9.7% 15% SaaS & Cloud 175 8.5% 10.3% ERP, Supply Chain & Commerce 6.7% 10% 7.5% Software Conglomerates 6.4% Vertical Market 5.8% 5% Analytics / AI / Business Intelligence 1.4% Marketing & Advertising 0.3% 0% Cloud & IT Infrastructure 0.1% 2015 2016 2017 2018 2019 LTM NTM 6/30/20 6/30/20 0% 10% 20% 30% 40%

Based on data available as of 6/30/20 Based on data available as of 6/30/20 Companies with EBITDA Margin between -5.0% and 5.0% deemed NA Companies with EBITDA Margin between -5.0% and 5.0% deemed NA

LTM = Last Twelve Months Source: CapitalIQ 24 ENTERPRISE SAAS AND CLOUD: M&A AND VALUATION UPDATE | Q2 2020

MEDIAN GROSS MARGIN TRENDS – SAAS & CLOUD 170

 Gross margins inched up to 71%, marking a new high largely driven by increasing scale and lower hosting costs  Gross margins vary widely by segment, ranging by 20%, with six segments achieving more than 70% gross margins and just three below 65% » Cloud Computing/Storage represents the weakest gross margins as competitive pricing pressure in the mature segment has led to thinner margins as companies strive for scale » Vertical markets tend to have lower gross margins, likely from a combination of typically lower scale and increased customer support costs for more specialized solutions

Gross Margins Gross Margins by Segment

80% Cloud & IT Infrastructure 77.4% 70.5% 70.8% 71.0% 68.1% 69.6% 70% 67.8% Marketing & Advertising 74.1% Human Resources 72.2% 60% Finance & Administration 72.1%

50% Analytics / AI / Business Intelligence 72.0% SaaS & Cloud 175 71.0% 40% Content Creation & Management 70.6%

30% Software Conglomerates 69.1% CRM & Customer Service 69.1% 20% Communication & Collaboration 68.2%

10% ERP, Supply Chain & Commerce 64.2% Vertical Market 60.9% 0% Cloud Computing / Storage 57.4% 2015 2016 2017 2018 2019 LTM 6/30/20 0% 25% 50% 75% 100% Based on data available as of 6/30/20 Based on data available as of 6/30/20

LTM = Last Twelve Months Source: CapitalIQ 25 ENTERPRISE SAAS AND CLOUD: M&A AND VALUATION UPDATE | Q2 2020

MEDIAN EBITDA MARGIN TRENDS – SAAS & CLOUD 170

 Median EBITDA margins increased slightly to 13.1%, though this is based on June 30 data so Q2 earnings results are not incorporated » Software Conglomerates and Cloud Computing/Storage generate strong EBITDA margins from their mature business models and large scale » Marketing & Advertising EBITDA margins are strong for larger players while smaller players are typically losing money as they attempt to add scale » The Vertical Market segment achieves high EBITDA margins despite the relatively low gross margins, often focusing on developing mature business models earlier than horizontal players who are more willing to trade near term profitability for increased growth as they chase larger total addressable markets

EBITDA Margins EBITDA Margins by Segment

16% Software Conglomerates 39.2% 13.8% 14% 13.1% Marketing & Advertising 28.4% 12.4% Cloud Computing / Storage 22.9% 12% 10.7% Vertical Market 22.0% 10.2% 9.8% 10% Content Creation & Management 16.7% Cloud & IT Infrastructure 15.2% 8% SaaS & Cloud 175 13.1% 6% Communication & Collaboration 13.0% Finance & Administration 9.6% 4% CRM & Customer Service 9.2% 2% ERP, Supply Chain & Commerce 5.3% Analytics / AI / Business Intelligence 4.0% 0% 2015 2016 2017 2018 2019 LTM Human Resources 1.7% 6/30/20 0% 10% 20% 30% 40% 50% Based on data available as of 6/30/20 Based on data available as of 6/30/20

LTM = Last Twelve Months Source: CapitalIQ 26 KEY TAKEAWAYS

M&A ACTIVITY & MULTIPLES

PUBLIC COMPANY VALUATION & OPERATING METRICS

CAPSTONE HEADWATERS SOFTWARE TEAM ENTERPRISE SAAS AND CLOUD: M&A AND VALUATION UPDATE | Q2 2020

2 SENIOR SOFTWARE COVERAGE TEAM 8 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 David DeSimone Teak Murphy Head of TMT Head of International TMT Head of Fintech Managing Director Director  David brings 30 years of  John Snead is responsible for  David has over 23 years of  David has over 22 years of  Teak has over 20 years of investment banking experience managing Capstone’s Central experience as an investment experience in equity, debt and experience assisting technology in technology M&A and European investment banking banker and leads the firm’s M&A transactions companies on mergers, financing activities Fintech practice  Previously, David served as a acquisitions, IPOs, and capital  Previously, he founded  Previously, he founded  Previously, David served as Principal at Bowen Advisors, raises SagePoint Advisors and was a Grenport Limited, was Senior Vice President at was a Vice President at  Prior experience includes Co-Founder, Partner, and Managing Director in Kroll’s Silverwood Partners, was head Boenning & Scattergood and SagePoint Advisors, Managing Director at corporate finance group, was a of corporate development for held positions at Needham & Montgomery & Co., Cowen, and Montgomery & Co. Director in Arthur Andersen’s Elcom International and held Company, RobertsonStephens Enterprise Partners Venture  BS, Engineering, from University Corporate Finance Practice and positions at SS&C Technologies and J.P. Morgan Capital of Michigan held positions at KPMG and and Advest, Inc.  BA, Government, from  BS, Finance, from University of Morgan Grenfell  MBA, Finance, from UCLA  BS, Finance, from Central Harvard University Southern California  BS, Accounting, from University Connecticut State University of Wolverhampton  MBA, Finance, from University  MBA, from University of of Connecticut Birmingham

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