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 Target Target Description Strategic Rationale Revenue Value Multiple
Provides online payments SaaS for nonprofits, faith-based organization, The acquisition of Stewardship by GTCR-backed Paya expands its reach into 11/01/18 and educational institutions, enabling users to set up a donor-advised the Nonprofit segment, delivering access to a large market segment that is NA NA funds and manage online donations. rapidly undergoing a transition to digital donations.
Neon One provides a cloud-based nonprofit software suite for mobile Blue Star and FTV partnered to back the combination of NeonCRM and 09/13/18 fundraising application, membership software, and events management. Rallybound, pairing NeonCRM’s donor management capabilities with NA NA RallyBound provides a social fundraising platform for organizations. Rallybound’s peer-to-peer fundraising tools.
Agilon's Donor CRM provides communications and donor relations in the Agilon provides Aquiline-backed Fullsteam with an entry point into the 09/11/18 higher education, health care and health relief, public broadcasting and Nonprofit segment, providing a strong donor management and fundraising NA NA membership-based business markets. solution that has processed over $12B in donations.
Provides SaaS for donor relationship management, email campaigns, online Insight’s investment enables EveryAction to accelerate its strategy of 08/21/18 giving and donation payment transaction processing, call centers, and acquiring to broaden focus and capabilities as well as invest in technology NA NA advocacy and volunteer management and reporting. to develop more innovative products and features on top of their CRM.
Pamlico’s acquisition allows Personify to accelerate plans to create an end- Provides customer analytics and related CRM and association management 07/26/18 to-end constituent management platform as they increasingly transition to NA NA software for member-based organizations. cloud-based deployments and expand their customer footprint.
Frontstream offers credit and debit card processing SaaS and services for After some stumbles following quick growth via acquisition, Marlin enables 05/30/18 nonprofit organizations, charities, businesses, government agencies, and NA NA Frontstream to reboot as it goes to market with its new Panorama platform. educational institutions. Provides higher education fundraising SaaS to colleges and universities, Reeher strengthens Blackbaud’s fundraising capabilities and adds scale in integrating with existing donor databases and providing features for 05/01/18 the Higher Education segment, an important focus area as Blackbaud $43M 4.3x analyzing donor information and performance, predictive reporting, and continues to broaden its offering. volunteer management. Provides fundraising management and marketing automation SaaS to The acquisition helps accelerate Salsa’s strategy to organically build upon 04/13/18 nonprofits, featuring email marketing, donor management, online advocacy their engagement platform and acquire technologies that empower NA NA campaigning, SMS messaging, event registration and reporting. nonprofits to more successfully fundraise and manage relationships.
Provides fundraising management SaaS to nonprofit organizations, SofTrek provides Togetherwork with its broadest offering in the nonprofit 04/11/18 including donor relationship management, online giving and call center segment, complementing earlier acquisitions targeted at churches and NA NA management, and volunteer management and reporting. synagogues, fraternities and sororities, and religious camps.
Provides workplace giving and volunteer management SaaS, enabling users The deal positions Benevity to continue to capitalize on its strong 01/24/18 to optimize corporate giving, employee donation matching programs and momentum in the corporate philanthropy segment with its workplace giving NA NA employee volunteer sign-up. and employee volunteering solutions while expanding its product breadth.
7 KEY TAKEAWAYS
M&A ACTIVITY
BUYER ANALYSIS
MARKET & TRENDS
CAPSTONE HEADWATERS NONPROFIT SOFTWARE TEAM & DEAL EXPERIENCE NONPROFIT SOFTWARE REPORT | Q4 2019
BUYER OVERVIEW – BLACKBAUD
Blackbaud’s stock has recently underperformed the broader SaaS & Cloud and Vertical Market segments Blackbaud SaaS & Cloud Vertical Market » Blackbaud is down 11.9% over the past 3 months and down 33% since hitting its all-time high last Stock Performance July, though has performed well in 2019, up 26.6% for the year Last 12 Months 26.6% 29.0% 32.7% Last 3 Months (11.9)% 8.1% 10.7% Blackbaud multiples slightly lag the broader SaaS & Cloud and Vertical Market segment metrics but at 5.0x LTM revenue and 22.8x LTM EBITDA, valuation is fairly strong given their slow growth Multiples EV/LTM Revenue 5.0x 6.7x 6.8x » LTM revenue multiple is up significantly from the end of 2018 when it traded at a modest 3.9x EV/NTM Revenue 4.8x 5.7x 5.6x
Blackbaud revenue growth has been fairly weak at just 4.5% over the past twelve months with similar EV/LTM EBITDA 22.8x 29.1x 27.0x growth expected for the next twelve months EV/NTM EBITDA 25.2x 26.1x 26.5x
» Recurring revenue is growing at a higher rate, around 9% expected for 2019, but is down from 11% Growth Metrics growth in 2018 with growth expected to decelerate to approximately 8% in 2020 LTM Revenue 4.5% 20.5% 18.1% NTM Revenue 4.5% 17.5% 15.4% Blackbaud is investing in new product categories (church management, higher-ed, CSR) but analysts don’t seem to expect meaningful uplift in the near term and management hasn’t provided 2020 guidance LTM EBITDA (6.6)% 16.4% 15.4% NTM EBITDA (9.3)% 14.8% 15.4% » EBITDA margin has slid to 22%, down from ~25% in 2017 with further declines to ~18-20% expected in 2020 driven by increased sales & marketing investment along with slightly weaker gross margins Margins Gross Margin 54.2% 71.4% 64.4% Blackbaud has invested $640M in M&A since the start of 2014, typically averaging a deal a year EBITDA Margin 21.8% 12.4% 21.8% » Blackbaud’s M&A focus has primarily focused on businesses that could expand footprint/TAM (e.g., church management and education) and accelerate transition to the cloud Nonprofit Software M&A History » We expect Blackbaud’s M&A pace to continue with a focus on TAM expansion Date Company Value 01/02/19 YourCause, LLC $158M 05/01/18 Reeher LLC $43M Capstone Headwaters’ Thoughts: Blackbaud has the scale to support substantial investment to 02/01/18 Seraphim NA drive growth and, as the largest company in the Nonprofit Software segment, enjoys some brand 06/26/17 Giving.com Limited (dba JustGiving) $121M 04/03/17 AcademicWorks, Inc. $50M name advantage. However, their segments are getting increasingly competitive with newer 07/11/16 Attentive.ly (fka Good + Geek Inc.) $4M players bringing modern, fully-integrated SaaS solutions to market. 09/02/14 MicroEdge, LLC $160M 03/09/13 MyCharity Limited NA Metrics as of 12/31/19 LTM = Last Twelve Months 9 NTM = Next Twelve Months NONPROFIT SOFTWARE REPORT | Q4 2019
BUYER OVERVIEW – COMMUNITY BRANDS
Community Brands is the umbrella holding company Insight Venture Partners created as a roll-up vehicle for the Nonprofit segment with three core segments and dozens of brands » Church software – division containing over 30 sub-brands covering nearly every church need Nonprofit Software M&A History • Insight purchased the church software roll-up Ministry Brands, previously backed by Genstar Capital Date Company Value and Providence Equity, in October 2016 (deal terms undisclosed) 03/26/19 Churchstreaming.tv NA 03/19/18 Sharefaith Inc. NA • Prior to Insight’s acquisition at the end of 2016, Ministry Brands completed over 15 acquisitions 12/11/17 501 Auctions LLC NA though many weren’t publicly announced 12/11/17 GiveSmart US Inc. NA • Ministry Brands’ acquisition pace was unprecedented in the Nonprofit segment, quickly creating a 12/11/17 Gesture LLC [fka Auctions By Cellular] NA major brand, though M&A has slowed the past couple years 09/27/17 DonorDirect NA » Association and Nonprofit – division containing approximately a dozen sub-brands 08/01/17 Configio NA 04/26/17 VanDamme Associates, Inc. (dba NimbleUser) NA • Established following Insight’s purchase of YourMembership.com in Feb’17 and quickly adding on 04/07/17 Abila Inc. [fka Sage Nonprofit Solutions] NA Abila, Aptify, and NimbleUser to capture a large portion of the association management segment 04/07/17 Aptify Corporation $75M • Quickly followed by roll-up of leading auction platforms 501 Auctions, GiveSmart, and Gesture 02/01/17 YourMemerbership.com NA 10/31/16 Ministry Brands LLC NA » Education – division of eight sub-brands focused on K-12 schools * Bolded transactions purchased by Insight Venture Partners directly as part of formation of Community Brands. • Community Brands has a broad suite of products in the K-12 segment with over 4,000 schools on Does not include acquisitions made prior to the formation of Community Brands. its platform, providing a significant growth opportunity in the segment
Capstone Headwaters’ Thoughts: With a recent shakeup at the top as Ross Crowley has stepped back into the CEO role, replacing JP Guilbault, it remains to be seen if this has an impact on M&A for Community Brands. The company has primarily grown through rapid M&A, consolidating industry leaders, and leaving products in tact rather than transitioning customers to a common platform. While Community Brands now enjoys a dominant position in the church and association segments there is still a lot of growth potential within the education and charitable nonprofit segments. We wouldn’t be surprised to see another wave of acquisitions in the near future.
10 NONPROFIT SOFTWARE REPORT | Q4 2019
BUYER OVERVIEW – MOST ACTIVE STRATEGIC ACQUIRERS
M&A History – Since 2014 Company Comments Date Company Value ▪ Roll-up for group management and payments software, backed by Aquiline in 2015 and bought by GI Partners in 2018 04/24/19 UnionWare Inc. NA ▪ Togetherwork has completed over a dozen acquisitions on the platform with eight in the Nonprofit segment 03/28/19 FILE990.ORG LLC NA ‒ SofTrek and Pennington provide fundraising software while FILE990 provides for easy 990 filing 04/11/18 SofTrek NA ‒ CircuiTree is a leader in faith-based camp management software 10/26/17 Chaverware NA Congregation Connect ‒ Congregation Connect provides congregation management software and Chaverware delivers synagogue member management 10/26/17 NA 08/16/17 Group Interactive Networks NA ‒ Doubleknot provides visitor, member, and fundraising services to museums, zoos, and other organizations 06/07/17 Pennington & Company NA 11/16/16 CircuiTree NA 09/22/16 Doubleknot LLC NA ▪ ClearCourse is a roll-up focused on software for payments and membership backed by Aquiline Capital Partners, the original investors in 08/01/19 Protech Computer Systems Limited NA Togetherwork 07/03/19 Trillium Systems Limited NA ▪ ClearCourse has completed 15 acquisitions on the platform in about 12 months with seven in the Nonprofit segment 06/04/19 Decisions Express Ltd NA ‒ APT, Decisions Express, MillerTech, Protech, Silverbear, and Trillium provide association management software 05/16/19 instaGiv Ltd NA ‒ instaGiv delivers mobile fundraising and engagement tools for charities 02/06/19 APT Solutions Ltd NA 01/16/19 Silverbear Ltd. NA 11/13/18 Miller Technology Limited NA ▪ The Pursuant Group has its roots in consulting and marketing for fundraising but has expanded its capabilities through several software 08/14/19 Causemo Inc. NA acquisitions 03/13/19 ADVIZOR Solutions, Inc. NA ‒ 2DIALOG, Causemo, and ADVIZOR provide fundraising automation and analytics 02/01/17 TouchPoint Software LLC NA ‒ ShareRewards provides shopping portals to raise money for nonprofits through online retail partners 10/27/15 ShareRewards NA ‒ ToughPoint Software provides church management software 03/10/15 2DIALOG NA ▪ Neon One was formed via the combination of NeonCRM and Rallybound, backed by Blue Star Innovation Partners and FTV Capital 04/07/19 Arts People, Inc. NA ▪ The Blue Star team had previously executed a rapid rolled up in the sports registration space with 20 acquisitions leading to a $300M exit 12/20/18 CiviCore NA ‒ Acquisitions have focused on building a complete software suite including CRM (NeonCRM), peer-to-peer fundraising platform 09/13/18 Rallybound NA (Rallybound), advocacy and grants management (CiviCore) and events management (Arts People) 09/13/18 NeonCRM NA ▪ Provides CSR solutions including employee giving and volunteering, grants management, and fundraising software, backed by GA and JMI 03/28/18 Versaic NA ‒ Versaic strengthened Benevity’s grants offering and Trust CSR helped expand into Europe 02/27/18 Trust CSR Limited NA ‒ GrantStream broadened Benevity’s offering to include grants management 11/09/15 GrantStream Inc. NA ▪ Formed in 2010 via the combination of Voter Activation Network and NGP to create a leader in political fundraising and campaign management 06/24/19 BSD Tools NA ▪ Launched EveryAction is 2014 to expand focus to include the broader Nonprofit segment 06/06/19 DonorTrends, Inc. NA ‒ BSD Tools provides online political fundraising and advocacy solutions 05/08/19 We Also Walk Dogs (dba ActionKit) NA ‒ EveryAction expanded its nonprofit offering through acquisitions of ActionKit (email marketing) and DonorTrends (donor analytics) ▪ Ruffalo Noel Levitz provides enrollment and fundraising software to the higher education segment 11/20/19 QuadWrangle, Inc. NA ‒ QuadWrangle provides alumni donor engagement and analytics 01/30/19 Funderful SIA NA ‒ Funderful provides alumni fundraising software 01/14/14 ScaleFunder, Inc. NA 11 ‒ ScaleFunder enables crowdfunding NONPROFIT SOFTWARE REPORT | Q4 2019
BUYER OVERVIEW – ADDITIONAL NOTABLE ACQUIRERS
M&A History – Since 2014 Company Comments Date Company Value ▪ Frontstream grew quickly organically and through acquisitions but had some stumbles; it was purchased by Marlin Equity from Arsenal in 2018 07/27/15 BiddingForGood, Inc. NA and has retooled its product with a more integrated offering but hasn’t returned to M&A since the change in ownership ‒ BiddingForGood adds auction and event management capabilities to Frontstream’s offering 02/28/14 TRUiST, Inc. NA ‒ TRUiST brings corporate employee giving and volunteering solutions 08/09/13 Artez Interactive, Inc. NA ‒ Artez provided web, mobile and social fundraising solutions for nonprofits while GiftWorks delivered donor management software 08/09/13 GiftWorks, Inc. NA
▪ ACS Technologies provides church and school ministry management software 04/15/16 Helpmate Technology Solutions, LLC NA ‒ Helpmate provides church management software and Mersoft delivers education software for faith-based ministries and schools 06/29/15 Mersoft (Solomon LMS) NA
▪ Rebranded after DonorCommunity (online fundraising and event management) acquired Telosa Software to add donor management 05/20/19 Heritage Designs LLC NA ‒ Heritage Designs provides donor management and fundraising software 05/18/17 Telosa Software, Inc. NA
▪ GoFundMe disrupted the Nonprofit segment, delivering a platform for crowdfunding which provides direct giving to individuals or causes 04/03/18 YouCaring.com $55M ‒ To date, its M&A activity has targeted the crowdfunding space with additions of YouCaring.com and CrowdRise 01/10/17 CrowdRise, Inc. NA
▪ Provides association management software, backed by BlueArc, Five Elms, and Level Equity in 2017 11/02/17 WebLink International Inc. NA ‒ ePly offers event registration and WebLink offers association management software 05/26/17 ePly Services Inc. NA
▪ Network for Good delivers an integrated platform for fundraising and donor management, backed by Camden Partners and Boathouse Capital 04/14/16 DonorPath Inc. NA ‒ GiveCorps strengthened NFG’s online fundraising while DonorPath brought digital fundraising training and coaching capabilities 05/20/14 GiveLink LLC (dba GiveCorps) NA
▪ Personify delivers CRM and communications solutions to associations and nonprofits 09/26/17 Wild Apricot Inc. NA ‒ Wild Apricot expanded Personify’s reach to smaller associations while Small World added community and social networking capabilities 11/09/15 Small World Labs Inc. NA
▪ Pushpay provides member engagement, donor development, and digital giving solutions for churches 12/12/19 Church Community Builder LLC $88M ‒ Church Community Builder broadened Pushpay’s offering to include church management solutions, delivering a more complete offering for its customers 11/23/16 Bluebridge Digital (Church app bus) $3M ▪ The acquisitions of roundCorner and Salesforce.org caused some stirs as folks thought Salesforce could be shifting strategies in the Nonprofit 04/17/19 Salesforce.org NA segment but roundCorner seems to be more about regaining control over a partner whose strategic direction was straying from Salesforce’s and the acquisition of Salesforce.org simplifies go-to-market and .org employees incentives 01/14/19 roundCorner, Inc. NA
▪ Salsa Labs provides advocacy, donor management, and online fundraising software, backed by Accel-KKR 11/05/15 TowerCare (dba DonorPro) NA ‒ Salsa Labs expanded its focus from advocacy into online fundraising via givezooks and added donor management via DonorPro 10/31/14 givezooks!, Inc. NA 12 NONPROFIT SOFTWARE REPORT | Q4 2019
ACTIVE INVESTORS IN NONPROFIT SAAS SEGMENT
PE FUND RELEVANT PORTFOLIO COMPANIES PE FUND RELEVANT PORTFOLIO COMPANIES
Indicates exited investment 13 KEY TAKEAWAYS
M&A ACTIVITY
BUYER ANALYSIS
MARKET OVERVIEW & TRENDS
CAPSTONE HEADWATERS NONPROFIT SOFTWARE TEAM & DEAL EXPERIENCE NONPROFIT SOFTWARE REPORT | Q4 2019
$10 BILLION MARKET
The Nonprofit Software segment represents an enormous market opportunity that is not well-served by horizontal players The Market remains highly fragmented with the largest public company, Blackbaud, claiming under 10% penetration There is a significant “greenfield” opportunity as many nonprofits are adopting dedicated software solutions for the first time while new categories and capabilities emerge Fundraising & Relationship Management $3B+ Market Fundraising Peer-to-peer fundraising Donor management Donor communications
Financial & Grants Management Payment Services $1.5B+ Market $3B+ Market Fund accounting Credit card processing Grants management ACH processing Scholarship management Payable management
Social Responsibility Organizational & Program Management
$1B+ Market $1.5B+ Market Employee giving Advocacy $ Employee volunteering Organization Management Case Management
Source: Blackbaud Investor Report 15 NONPROFIT SOFTWARE REPORT | Q4 2019
PHILANTHROPY – HIGHLY FRAGMENTED MARKET
Fragmented by software providers with Blackbaud, the largest provider, Fragmented by size with vast majority of nonprofits under $1M budget claiming less than 10% of market share (IRS data), representing an enormous long-tail opportunity
Fragmented by source of funds with 75% coming from individuals/bequest Fragmented by mission with varying needs depending on focus Corporations 5%
Foundations 20% Human Religion Education Services Foundations Health 31% 14% 12% 11% 9%
Individuals 75% Society Environment Benefit International Arts/Culture /Animals Individuals 7% 6% 5% 3% 2%
Source: Giving USA 2019 Report (Individuals includes Bequest) Source: Giving USA 2018 Report 16 NONPROFIT SOFTWARE REPORT | Q4 2019
PRODUCT MAP
Nonprofit segment has key product feature requirements that are not well served by broader, horizontal software providers Associations, charities, and political nonprofits share a lot of the same key features and organizations are increasingly seeking modern solutions, providing a threat to legacy providers » Transaction processing, whether dues or donations, are increasingly moving to digital platforms » Constituent management through an integrated database enhances member and donor relationships » Analytics are rising in importance as modern solutions enable organizations to better understand and serve their constituents Foundations tend to be slower moving and change solutions less frequently » Primary focus for product selection is driven by financial management • Managing grants, reconciling contributions and distributions, and managing funds are high priority focus areas » Constituent management usually through dedicated portals with email and marketing automation much less important Crowdfunding has quickly captured a large portion of donations as people are more inclined to give to recipients they are personally connected to and the model provides quick, easy impulse giving
17 NONPROFIT SOFTWARE REPORT | Q4 2019
MARKET TREND – INVASION OF PRIVATE EQUITY
PE firms are attracted to the niche market which is not well served by horizontal software leaders due to specific product needs » Only two pure-play public software companies Highly fragmented market provides roll-up opportunities to gain scale » Lack of clear leaders with deep brand awareness enables aggressive acquirers to consolidate multiple smaller businesses to gain benefits of scale without lack of “name brand” positioning that could otherwise hinder growth potential » Combining businesses with complementary product offerings enables cross-selling, which brings a lower customer acquisition cost (CAC) for upsell compared to new customer wins, and delivers customers a better integrated experience » Early PE entrants often had to dip below their traditional check sizes for initial platform investments due to a lack of opportunities with sufficient scale » Ministry Brands/Community Brands is by far the largest scale roll-up in the Nonprofit software space, having completed over 25 acquisitions Large payments processing opportunity » As donations, dues and grants increasingly move digital there is an enormous opportunity to capture processing fees on the $400B flowing annually to these organizations » Many PE investors have active roll-up strategies in the payments space and are looking at vertical market software solutions that are processing high payments volume as a way to grow those businesses Significant greenfield opportunity » Many smaller nonprofits are adopting purpose-built solutions for the first time, seeking digital payments and improved donor management » Developing segments like donor-advised funds and CSR have many companies in need of their first product and are seeking modern solutions to help support growth Capstone Headwaters is increasingly seeing interest from larger private equity buyers attracted to the segment looking to invest $100M+ » Very few independent companies exist with enough scale to warrant $100M+ equity checks » We expect to see a wave of earlier investments coming to market in the next 24 months that could attract strong valuations for well positioned businesses from large PE firms attracted to the segment and eager to put capital to work
18 NONPROFIT SOFTWARE REPORT | Q4 2019
MARKET TREND – THE DIGITAL TRANSFORMATION
Online presence and digital marketing Ice Bucket Challenge » Smaller nonprofits are increasingly establishing a digital presence and leveraging a variety of tools and analytics to better target and retain donors, although a large portion still lack any digital presence • Leverage email, SMS, and social media for outreach and communications • Utilize websites and videos as a means of storytelling to drive awareness and share outcomes with viral potential Digital fundraising » Online giving represents less than 10% of dollar volume but experiencing double digit growth » Mobile giving is experiencing triple digit growth in recent years, as donors increasingly consume content on mobile devices In 2014 the Ice Bucket Challenge while savvy nonprofits adopt tools to simplify giving went viral, quickly becoming an » Text to give has gained popularity as a great way to capture impulse giving international phenomenon with millions sharing videos and raising » Subscription giving is growing, driven by digital giving adoption and consumer’s increasing comfort with subscription services, $115M in just a couple months for with nonprofits leveraging tools to drive more donors to subscriptions in an effort to reduce churn ALS Association which had raised less than $25M in total funding Peer-to-peer the prior year. » Social networks, email, and text messaging provide increased connections for users while new software tools are helping nonprofits leverage their donors’ networks to increase donations » Individuals are more likely to donate when the request comes from a trusted friend or family member » Facebook has exploded onto the scene, announcing last year that users raised more than $300 million for nonprofits in birthday donations on the platform Crowdfunding is generating billions in annual charitable giving » Crowdfunding has created an entirely new category of digital giving, though donations are often directly to individuals, not nonprofits » Simplifies giving with easy-to-use interfaces and frictionless payments » Demonstrates donor’s desire to see funds go directly to the people and issues they care about with clear use of funds and a meaningful contribution to a goal » However, there are concerns over lack of tax deductibility for direct donations to individuals and lack of oversight over use of funds Sources: Nonprofits Source, Facebook 19 NONPROFIT SOFTWARE REPORT | Q4 2019
MARKET TREND – THE RISE OF THE DAF
Donor Advised Funds (DAFs) were originally created in the 1930s but have more recently taken off in popularity » DAFs now account for over 12% of giving with assets held in DAFs reaching $121 billion in 2018, nearly tripling from $45 billion in 2012 » Popularity of DAFs has primarily been driven by tax advantages, simplicity, and reduced expenses for foundations » Financial institutions are pushing DAFs to high net worth clients due to the tax benefits • Big motivation for financial institutions is the benefit of capturing more assets under management • Increasingly looking to extend DAFs from a tool for the wealthy down to the average individual as a means to centralize giving and provide flexibility on timing of contributions and distributions to charities
The 2018 Tax Cuts and Jobs Act eliminated the tax benefit of giving for many Americans as 90% of tax payers now take the standard deduction » Changes may have already had an impact as individual giving decreased 1.1% in 2018 while giving by foundations and corporations were up over 5% » DAFs can be utilized to aggregate contributions for tax purposes into a single year when deduction can be utilized while the distributions to nonprofits are spread over time
Corporate DAFs for employees could provide a new market opportunity that delivers significant benefits to employer and employee » Company can provide each employee with a set amount of funds they can direct as a part of their benefits package • Enhances employee satisfaction, raises awareness of CSR, and provides employees a dedicated fund to utilize for giving • Company can capture the tax benefit of donations when an individual employee taking standard deduction often would not » DAFs simplify gift-matching of employee donations when companies match contributions through a DAF, reducing administrative burden and ensuring donation dollars meet corporate giving criteria (e.g., every dollar an employee puts into their corporate DAF account is matched by the company) » If properly structured, employees may be able to forgo salary with money directed to a DAF to effectively capture tax benefits otherwise lost if the employee takes a standard deduction » Corporation gets credit for employee giving as all donations come from the corporate DAF, boosting CSR efforts and community perception » Employees can participate in corporate grant making, providing easier to find donation opportunities they care about and enhancing the employer and employee relationship through partnering on philanthropy 20 Sources: Giving USA, National Philanthropic Trust and Tax Policy Center NONPROFIT SOFTWARE REPORT | Q4 2019
MARKET TREND – ANALYTICS
Adopting modern CRM capabilities to better understand and serve their constituents » Consumer expectations and preferences are quickly shifting with nonprofits and associations needing to adjust their approaches to keep up with trends » User experience meaningfully impacts constituents’ impression of nonprofits and associations » Nonprofits and associations are increasingly viewing their donors or members as customers and striving to provide heightened levels of satisfaction Leveraging internal data » Better serve donors and members through deeper understanding based on communication preferences, historical involvement, etc. on an individual basis » Improved tracking of relationship history to better manage customers, enabling alternative outreach campaigns that are more individually tailored for success » ROI based on campaign type, donor demographics, etc. can help organizations better understand donor acquisition costs compared to lifetime value and drive substantially improved returns ultimately determining whether a nonprofit can survive in a very crowded segment with high failure rates » Identify key evangelists and empower peer-to-peer outreach for strong ROI Communications » Transitions from snail mail to digital communications via e-mail, texting, and social networks provide more paths for communications » Varying preferences amongst constituents for how they are contacted based on content (e.g. outreach, updates, thank you notes) further complicates managing effective communications » Savvy nonprofits and associations adopt tools providing flexibility to connect with constituents in ways that drive the strongest relationship with each individual 3rd party data » Helps provide a more holistic view of constituents, allowing for improved targeting and management » Identify donors that are good candidates for significant donation increases based on other giving or recent life events » Improved ability to identify higher ROI targets to invest additional resources and time
21 KEY TAKEAWAYS
M&A ACTIVITY
BUYER ANALYSIS
MARKET OVERVIEW & TRENDS
CAPSTONE HEADWATERS NONPROFIT SOFTWARE TEAM & DEAL EXPERIENCE NONPROFIT SOFTWARE REPORT | Q4 2019
2 SENIOR NONPROFIT SOFTWARE COVERAGE TEAM 3 Capstone Headwaters has organized a highly skilled transaction team with deep industry expertise, close relationships with market leaders, and extensive execution experience
Teak Murphy David Michaels John Snead Director, Nonprofit Software Head of TMT Head of International TMT Teak has over 15 years of David brings 28 years of John Snead is responsible for experience assisting technology investment banking experience managing Capstone’s Central companies on mergers, in technology M&A and European investment banking acquisitions, IPOs, and capital financing activities raises Previously, he founded Previously, he founded Prior experience includes SagePoint Advisors and was a Grenport Limited, was SagePoint Advisors, Co-Founder, Partner, and Managing Director in Kroll’s Montgomery & Co., Cowen, and Managing Director at corporate finance group, was a Enterprise Partners Venture Montgomery & Co. Director in Arthur Andersen’s Corporate Finance Practice and Capital BS, Engineering, from University held positions at KPMG and BS, Finance, from University of of Michigan Morgan Grenfell Southern California MBA, Finance, from UCLA BS, Accounting, from University of Wolverhampton MBA, from University of Birmingham
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2 CAPSTONE CARES 4 A good start… » Offsite volunteerism – “Leave everywhere we go better off for us having been there” » Ad hoc donations and employee gift matching Currently launching Capstone Cares initiative » Formed ten member committee, two from our tech group » Established to identify a cause to support and organization to partner with on a multi-year effort to provide a meaningful advancement of their mission » Mission Statement: Capstone Headwaters believes that providing a solid foundation for kids is the most important investment we can make. For this reason, we are pleased to introduce you to our signature community initiative “Capstone Cares.” Nonprofit software deal team’s commitment to our clients » 1% of success fee donated in client’s name to a local charity of client’s choosing
Selected Charity 1% of Fee 1% of Success Fee Capstone Headwaters
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2 SELECT NONPROFIT SOFTWARE DEAL EXPERIENCE – CYBERGRANTS 5
CyberGrants is the leading provider of software-as-a-service (SaaS) solutions supporting employee engagement, grant management and corporate social responsibility. CyberGrants has delivered fully-hosted web-based SaaS solutions to many of the largest companies and foundations in the world, including 40% of the Fortune 100.
Through its integrated grants management and employee engagement suite, CyberGrants connects companies, foundations, employees and not-for-profits to support the delivery of more than $2.5 has received growth equity from billion of charitable giving annually.
Capstone Headwaters ran a highly competitive and efficient process that resulted in 13 Indications of Interest and 7 Letters of Intent. The valuation increased by 50% from the original target range resulting in premium multiples. With 4 best and final offers at similar valuation, the founder was able to choose the buyer that would enable him to quickly exit the business while ensuring his key people were in good hands. Waud Capital Partners had a strong CEO in residence who was a great
The undersigned acted as exclusive financial advisor to fit for the CyberGrants culture. CyberGrants, Inc.
“Capstone Headwater’s deep knowledge of the SaaS space, high- touch guidance and uncanny ability to instantly understand my company and the highly specialized market it serves paved the way for a great outcome. Their skill in positioning my company in the most attractive light, bringing all of the right potential partners to the table and managing a competitive process resulted in a valuation that far exceeded my expectations and Sean Flanagan allowed us to attract the ideal partner in Waud Capital Partners.” Chief Executive Officer
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2 SELECT NONPROFIT SOFTWARE DEAL EXPERIENCE – NETWORK FOR GOOD 6
Network for Good provides small nonprofits and partners with an innovative, all-in-one fundraising and donor management platform along with support services needed to execute modern, results- oriented fundraising campaigns. According to the 2018 Giving USA report, Americans gave $410 billion to some of the 1.5 million U.S.-based nonprofits last year, most of whom rely on a patchwork of outdated methods and software solutions to attract, solicit, accept, and track these donations.
Through its platform Network for Good has helped process over $2.5 billion and boasts a roster of has received growth investment from more than 6,500 nonprofit customers and partners such as Facebook and Google leveraging their platform to power consumer giving.
Capstone Headwaters ran a highly competitive and efficient process, exploring options for full sale, majority recap and growth investment, that resulted in 10 Indications of Interest from strategic software providers and financial investors. Network for Good ultimately decided on Boathouse Capital for growth equity to support their continued high growth and further cultivate their
The undersigned acted as exclusive financial advisor to leadership position. Network for Good, Inc.
"We chose Capstone Headwaters because they know our industry and they are top ranked for middle market M&A. Both of those proved to be key to our collective success, but what ended up really differentiating them was their dedication and availability from the top of their team to the bottom, their clear, comfortable communication style and their deal structuring experience.” Bill Strathman Chief Executive Officer
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