Capstone Partners Investment Banking Advisors 2014 AWARD WINNER: Capstone Partners BOUTIQUE INVESTMENT BANKING Investment Banking Advisors FIRM of the YEAR
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Capstone Partners Investment Banking Advisors 2014 AWARD WINNER: Capstone Partners BOUTIQUE INVESTMENT BANKING Investment Banking Advisors FIRM OF THE YEAR SaaS & Cloud M&A and Valuation Update Q2 2014 BOSTON CHICAGO LONDON LOS ANGELES PHILADELPHIA SAN DIEGO SILICON VALLEY TAMPA Capstone Partners CapstoneInvestment BankingPartners Advisors Over a Decade of M&A Excellence 1 Investment Banking Advisors WORLD CLASS WALL STREET EXPERTISE.1 BUILT FOR THE MIDDLE MARKET.TM Capstone Partners TableInvestment Bankingof Contents Advisors Section Page Introduction Research Coverage: SaaS & Cloud 4 Key Takeaways 5-6 M&A Activity & Multiples M&A Dollar Volume 8 M&A Transaction Volume 9-11 LTM Revenue Multiples 12-13 Revenue Multiples by Segment 14 Highest Revenue Multiple Transactions for LTM 15 Notable M&A Transactions 16 Most Active Buyers 17-18 Public Company Valuation & Operating Metrics SaaS & Cloud 130 Public Company Universe 20-21 Recent IPOs 22-31 Stock Price Performance 32 LTM Revenue, EBITDA & P/E Multiples 33-35 Revenue, EBITDA and EPS Growth 36-38 Margin Analysis 39-40 Best / Worst Performers 41-42 Notable Transaction Profiles 44-53 Public Company Trading & Operating Metrics 55-60 Technology & Telecom Team 62-64 Capstone Partners CapstoneInvestment BankingPartners Advisors Over a Decade of M&A Excellence 2 Investment Banking Advisors 2 Capstone Partners CapstoneInvestment Banking Partners Advisors Investment Banking Advisors Observations and Introduction Recommendations Capstone Partners CapstoneInvestment BankingPartners Advisors Over a Decade of M&A Excellence 3 Investment Banking Advisors WORLD CLASS WALL STREET EXPERTISE.3 BUILT FOR THE MIDDLE MARKET.TM Capstone Partners ResearchInvestment Banking Coverage: Advisors SaaS & Cloud Capstone’s Technology & Telecom Group focuses its research efforts on the following market segments: Enterprise SaaS & Mobile & Wireless Consumer Internet Cloud Analytics / Business Intelligence Cloud & IT Infrastructure Cloud Computing / Storage Communication & Collaboration Content Creation & Management Content Delivery Services E-Commerce Consumer, IT & CRM & Customer Service Telecom Hardware ERP, Supply Chain & Commerce Finance & Administration Human Resources Licensed Software Leaders Marketing & Advertising Vertical Markets Capstone Partners CapstoneInvestment BankingPartners Advisors Over a Decade of M&A Excellence 4 Investment Banking Advisors 4 Capstone Partners KeyInvestment Takeaways Banking Advisors – M&A Activity & Multiples LTM M&A Dollar Volume retreats to 2010 levels at $38.7B Private dollar volume continued to increase while public company M&A slowed LTM transaction volume increased to 787 deals resulting in a new five year high Q2 saw 233 deals, a significant increase from Q1’s 179 deals Vertical Market solutions constitute roughly one third all transactions with over 200 deals per year since 2011 The Median LTM Revenue Multiple paid for private company targets fell to 3.3x in LTM, retreating to 2011 levels Hot companies and sectors can see double digit revenue multiple exits but those are the exception with most companies being acquired at more modest multiples The Median LTM Revenue Multiple paid for public company targets above $100M remained consistent at 3.2x Fewer low multiple sub $100M deals boosted the overall LTM revenue multiple to match $100M+ LTM revenue multiple Notable M&A transactions in Q2 Priceline.com / OpenTable ($2.6B) WEX / Evolution1 ($533M) Amobee / Adconion ($229M) IVP / iParadigms ($752M) GTCR / Vocus ($481M) Xerox / ISG Holdings ($225M) Nest / Dropcam ($555M) Acxiom / LiveRamp ($310M) Summit Partners / Ability Networks ($550M) Telkom / Business Connexion ($293M) The most active buyers include Oracle, Google, Vista Equity Partners, IBM, SAP, Cisco, Genesys, Autodesk, Intuit, Microsoft and Yahoo! Capstone expects the robust M&A activity and attractive exit valuations to continue in SaaS & Cloud There is some risk that a market correction could negatively impact activity levels and valuation multiples Capstone Partners CapstoneInvestment BankingPartners Advisors Over a Decade of M&A Excellence 5 Investment Banking Advisors 5 Capstone Partners KeyInvestment Takeaways Banking Advisors – Public Company Metrics Q2’14 saw 10 SaaS & Cloud IPOs added to the SaaS & Cloud 130 Universe Majority of the public offerings performed well, opening well above offer prices with strong early momentum Median performance for the SaaS & Cloud 130 was slightly negative in Q2’14 SaaS & Cloud 130 posted a 2.7% decline in Q2 while the NASDAQ posted a 5% gain Median LTM Revenue Multiple weakened to 5.0x, but still represents a healthy multiple Medians range from 7.7x for ERP, Supply Chain & Commerce to a low of 1.9x for Content Delivery Services Median LTM EBITDA multiple stands at 18.0x Four of the thirteen segments are trading at medians above 30x LTM EBITDA Median P/E multiples continue to rebound and now stand at a five year high of 29.2x for LTM Eight segments trade between the range of 30-50x earnings SaaS & Cloud 130 posted median revenue growth of 19.4% in LTM with 20.3% growth expected for NTM The continued increase in revenue growth can be attributed to several companies going public in Q2 LTM Median EBITDA growth of 6.8% is down from 10.6% in 2013 but is expected to increase to 12.2% in NTM More than half of the segments are expected to achieve greater than 10% EBITDA growth for NTM Median gross margins have stayed relatively constant at 68.0% Content Creation & Management and Cloud & IT Infrastructure top the list at over 80% as newly emerging technologies that enable the cloud to run more efficiently command strong margins Median EBITDA margin dropped slightly to 15.4% as companies reinvest to fuel growth Capstone Partners CapstoneInvestment BankingPartners Advisors Over a Decade of M&A Excellence 6 Investment Banking Advisors 6 Capstone Partners CapstoneInvestment Banking Partners Advisors Investment Banking Advisors M&AObservations Activity & and MultiplesRecommendations Capstone Partners CapstoneInvestment BankingPartners Advisors Over a Decade of M&A Excellence 7 Investment Banking Advisors WORLD CLASS WALL STREET EXPERTISE.7 BUILT FOR THE MIDDLE MARKET.TM Capstone Partners LTMInvestment M&A Banking Dollar Advisors Volume LTM M&A Dollar Volume retreats to 2010 levels at $38.7B Private dollar volume continued to increase while public company M&A slowed In the public sector, Q2’14 had only one $1B+ deal, while Q2’13 had four $1B+ deals Difference in Q2’14 vs Q2’13 public dollar volume was $12.1B due to the BMC Software deal ($8.4B) and Lender Processing Services deal ($3.9B) both in Q2’13 Capstone Partners CapstoneInvestment BankingPartners Advisors Over a Decade of M&A Excellence 8 Investment Banking Advisors 8 Capstone Partners LTMInvestment M&A Banking Transaction Advisors Volume by Segment LTM transaction volume of 787 deals results in a new five year high Q2 saw 233 deals, a significant increase from Q1’s 179 deals Vertical Market solutions constitute roughly one third all transactions with over 200 deals per year since 2011 Capstone Partners CapstoneInvestment BankingPartners Advisors Over a Decade of M&A Excellence 9 Investment Banking Advisors 9 Capstone Partners LTMInvestment M&A Banking Transaction Advisors Volume by Deal Size – Private Targets Private company deal volume remains healthy with deal mix shifting towards the higher end in recent periods LTM median deal value at $31M sets a new five year high Capstone Partners CapstoneInvestment BankingPartners Advisors Over a Decade of M&A Excellence 10 Investment Banking Advisors 10 Capstone Partners LTMInvestment M&A Banking Transaction Advisors Volume by Deal Size – Public Targets Public transaction volume dropped to a new five year low while median deal value rebounded slightly from 2013 Q2’13 saw four $1B+ deals, two of which aggregated to a total deal size of $12.1B; which explains the sharp drop in dollar volume Capstone Partners CapstoneInvestment BankingPartners Advisors Over a Decade of M&A Excellence 11 Investment Banking Advisors 11 Capstone Partners MedianInvestment Banking LTM Advisors Revenue Multiples – Private Targets Median LTM Revenue Multiple paid for private company targets fell to 3.3x Hot companies and sectors can see double digit revenue multiple exits but those are the exception with most companies being acquired at more modest multiples Capstone Partners CapstoneInvestment BankingPartners Advisors Over a Decade of M&A Excellence 12 Investment Banking Advisors 12 Capstone Partners MedianInvestment Banking LTM Advisors Revenue Multiples – Public Targets The Median LTM Revenue Multiple paid for public company targets above $100M remained consistent at 3.2x Fewer low multiple sub $100M deals boosted the overall LTM revenue multiple to 3.2x With less than 30 public company target data points in a given year, the median multiple shows volatility, making it difficult to draw reliable conclusions on M&A valuation trends based on the data Capstone Partners CapstoneInvestment BankingPartners Advisors Over a Decade of M&A Excellence 13 Investment Banking Advisors 13 Capstone Partners MedianInvestment Banking LTM Advisors Revenue Multiples by Segment – 2009 to Current Median Revenue Multiples for SaaS segments vary from 2.3x to 4.6x Analytics/Business Intelligence and Finance & Administration targets achieved median multiples of 4.0x or more as these companies are often acquired earlier in their revenue