NONPROFIT SOFTWARE Q4 2019 CONTRIBUTOR HIGHLIGHTS Teak Murphy 33 deals announced in 2019 remains at the high end of transaction volume in recent years as Director strong deal activity continues 310-746-5006 [email protected] There has been over $3 billion in reported transaction value since the start of 2015, though valuation data is available for only 17 of the 164 deals Nonprofit M&A deals have traded at a median of 5.4x LTM Revenue although it is difficult to draw conclusions with data for just seven deals Blackbaud, the only public company with a broad focus on nonprofit, has recently underperformed the broader SaaS & Cloud and Vertical Market segments but trades at a healthy 5x LTM revenue despite modest growth Recent market trends include the invasion of private equity, growing popularity of donor- advised funds (DAFs), and accelerating transition to digital giving www.capstoneheadwaters.com KEY TAKEAWAYS M&A ACTIVITY BUYER ANALYSIS MARKET OVERVIEW & TRENDS CAPSTONE HEADWATERS NONPROFIT SOFTWARE TEAM & DEAL EXPERIENCE NONPROFIT SOFTWARE REPORT | Q4 2019 KEY TAKEAWAYS MARKET SIZE NONPROFIT TRENDS M&A ACTIVITY AND VALUATIONS Nonprofit software represents a $10 billion Private equity (PE) firms are driving transaction 2019 transaction volume of 33 deals remains at total available market (TAM) volume in the space the high end of recent years Blackbaud, the only public provider broadly Digital donations are on the rise as new tools Beginning in 2015, the Nonprofit Software targeting nonprofit software, claims less than and shifting demographics drive increased segment saw a significant increase in M&A 10% market penetration online charitable giving activity, largely driven by PE/VC-backed players The industry is highly fragmented, particularly Donor advised funds continue to gain traction The median LTM revenue multiple of 5.4x for at the lower end of market nonprofit software is above recent levels for Analytics have the potential to significantly broader Enterprise SaaS and Vertical Market Much of the TAM is “greenfield” opportunity impact relationship management and drive multiples and slightly above Blackbaud’s 5.0x in SMB and developing categories/capabilities fundraising efficiency improvements NOTABLE RECENT M&A TRANSACTIONS MOST ACTIVE BUYERS CAPSTONE HEADWATERS’ THOUGHTS Buyer Target Segment EV Nonprofit Software is still in the early days of Church management $88M consolidation with only two public companies software and a small number of PE-backed players Association management NA software vying for market share in a highly fragmented Nonprofit donor analytics NA market Nonprofit donor analytics NA We expect to see additional consolidation with smaller players getting scooped up by larger Fundraising processing NA software strategics to add scale and fill in product gaps .org Customer/Donor relationship $300M Early PE-backed players will likely be hitting management the market over the next 24 months as larger Fundraising processing NA software PEs are increasingly attracted to the space but Nonprofit database provider NA struggling to find investment opportunities with enough scale Customer/Donor relationship NA management CSR and employee $157M engagement software 2 KEY TAKEAWAYS M&A ACTIVITY BUYER ANALYSIS MARKET OVERVIEW & TRENDS CAPSTONE HEADWATERS NONPROFIT SOFTWARE TEAM & DEAL EXPERIENCE NONPROFIT SOFTWARE REPORT | Q4 2019 M&A DEAL VOLUME Transaction volume of 33 deals remains at the high end of recent years as strong deal activity continues » Beginning in 2015, the Nonprofit Software segment saw a significant increase in M&A activity, largely driven by PE-backed players • 50% of transactions have been completed by private equity investors or PE/VC-backed strategics » Blackbaud and PushPay are the only public pure-play nonprofit software acquirers, with few other public players seeking offerings tailored to nonprofits Over $3 billion in disclosed deal value since the start of 2015, though total deal value is much larger as valuation data is available for only 17 of the 164 deals » Insight’s acquisition of Ministry Brands represents nearly half of reported deal dollars » The vast majority of buyers are private companies or private equity firms which typically don’t provide valuation data 40 38 deals 34 deals 35 33 deals 9 1 30 deals 2 1 30 27 deals 4 5 3 9 25 5 8 4 2 9 20 17 deals 1 15 1 11 9 Transactions 15 6 9 deals 11 18 10 1 2 7 6 8 5 2 2 6 7 4 2 3 2 2 0 2013 2014 2015 2016 2017 2018 2019 Financial Buyer PE/VC-backed Company Private Company Public Company Community Brands LTM = Last Twelve Months Sources: Capital IQ, 451 Group and CSHW Research 4 NONPROFIT SOFTWARE REPORT | Q4 2019 REVENUE MULTIPLES Nonprofit M&A deals have traded at a median of 5.4x LTM Revenue although it is difficult to draw conclusions with data for just seven deals » M&A deals median revenue multiple for Nonprofit Software is above the broader SaaS & Cloud and Vertical Market median levels » Blackbaud, the only pure-play public company broadly targeting the Nonprofit Software segment, ended the year trading at 5.0x revenue while Pushpay, a provider of church management software, traded at 6.5x Well positioned SaaS companies that check all the key boxes can command premium revenue multiples above the median ✓Companies with revenue scale of $15-20M+ are needle movers for strategics and potential platform investments for private equity players ✓Most aggressive valuations are placed on higher growth businesses and those that pass the “Rule of 40” (revenue growth + EBITDA margin > 40%) ✓Proven unit economics (high customer retention, high recurring revenue mix, rational customer acquisition costs relative to payback period and lifetime value) 7x 6x 5x 4x 6.5x 3x 5.4x 5.0x 2x 4.3x 4.1x Enterprise / Revenue Enterprise LTM Value 1x 0x Nonprofit Software SaaS & Cloud Vertical Market Blackbaud Pushpay M&A - All Dates M&A - LTM M&A - LTM LTM = Last Twelve Months Blackbaud and Pushpay data as of 12/31/19 5 NONPROFIT SOFTWARE REPORT | Q4 2019 NOTABLE M&A TRANSACTIONS – 2019 LTM Enterprise Ann. Date Buyer Target Target Description Strategic Rationale Revenue Value Multiple Provides administrative management and payments SaaS for U.S. churches, Church Community Builder broadens Pushpay’s offering to include church 12/12/19 enabling member communication, records management, payments, and $88M NA management, delivering a more complete offering. other administrative capabilities. GrowthZone’s association management software helps member-based The investment by Greenridge enables increased investment in product 11/07/19 organizations grow and retain membership, generate revenue, NA NA development and growth in its customer base. communicate with members, and streamline their day-to-day operations. Causemo will strengthen Pursuant’s analytics capabilities, delivering Causemo Inc. develops a fundraising and donor segmentation SaaS 08/14/19 customers a data platform with helpful insights and recommendations on NA NA platform which uses data science to help nonprofit organizations fundraise. how to apply those insights. DonorTrends’ Donorlytics cloud-based tool helps nonprofit organizations The acquisition brings enhanced fundraising analytics to EveryAction’s 06/06/19 NA NA maximize donations and net revenue by providing data and analytics. customer base, delivering actionable data to improve fundraising efforts. Qgiv, Inc. develops online donation software solutions. It offers a digital Qgiv provides Sphere with a vertically focused solution targeting the 04/23/19 platform that empowers fundraising across any context, including mobile, Nonprofit segment as Sphere seeks to grow its payment offerings via NA NA online, and in-person kiosk fundraising. vertically focused solutions. The consolidation of Salesforce.org within Salesforce simplifies the Salesforce.org provides cloud-based solutions based on the Salesforce 04/17/19 .org company’s go-to-market strategy and allows better incentivization of $300M NA platform for nonprofits and educational institutions. Salesforce.org employees. Provides association management SaaS for associations, professional Qgiv provides Fullsteam with a vertically focused solution targeting the 02/22/19 societies, non-profits and member-based organizations including CRM, association segment as Fullsteam seeks to grow its payment offerings via NA NA website content management, and business intelligence. vertically focused solutions. The merger combines Foundation Center’s database of foundations and GuideStar is the world's largest source of information on nonprofit 02/05/19 grants with GuideStar’s data on nonprofit organizations under one roof to NA NA organizations, providing insights, data services, APIs, and web-based tools. create a synergistic network providing a 360 degree view of giving. roundCorner provides a cloud-based CRM and marketing automation The acquisition of roundCorner allows Salesforce to gain control over a 01/14/19 system for board management, major gifts, corporate and foundation NA NA partner whose strategic direction was straying from Salesforce’s. relations, membership and prospect management, and event management. Provides SaaS-based employee engagement and grants management Blackbaud enhances its product offering through the addition of 01/02/19 solutions for employees and nonprofits. YourCause’s cloud-based CSR and employee engagement solutions. $157M 7.9x 6 NONPROFIT SOFTWARE REPORT | Q4 2019 NOTABLE M&A TRANSACTIONS – 2018 LTM Enterprise Ann. Date Buyer