WORLD TECH M&A REPORT 2016 www.corumgroup.com 2016 – ANOTHER RECORD YEAR? 2016 will continue the LUMINARY PANEL record pace established Thanks to our luminary panelists who took part in “Forecast 2016: last year in all 30 Global Tech M&A.” For more of their thoughts on the technology market sectors around landscape, view the original webcasts at www.corumgroup.com. the world. This report profiles those sectors, “The most interesting conversations we’re having including top buyers, result not from any one trend, because anyone can jey deals and valuation extrapolate, but from triangulating, looking for ways metrics. For the third these trends will play off of each other.” year, we are presenting PETER COFFEE, SALESFORCE the Corum Top Ten Disruptive Technology Trends with individual “There is an arms race in data security between good reports by Corum’s top executives. These trends guys and bad guys, and making it convenient for the are driving tech M&A, fueled by over $4 trillion good guys to use the best stuff is probably the bigger dollars available to both strategic and financial challenge now, rather than the technical challenge.” buyers. REESE JONES, SINGULARITY UNIVERSITY Special thanks to our panel of industry luminaries “I’m very excited to see more companies getting formed for their insights and contribution to this report: in the areas of predictive analytics, in the area of being Peter Coffee from Salesforce, Reese Jones from able to help industry-specific verticals, to be able to Singularity University, Mukund Mohan from understand what to do with large amounts of data.” Microsoft Ventures and Dr. Karl Popp from MUKUND MOHAN, MICROSOFT SAP. They were followed by our Private Equity panel, including Rob Palumbo from Accel-KKR, “Artificial intelligence enablement is a very hot topic Joe Manning from Riverside, Peter Freeland from because we see opportunities to help and augment, BuildGroup and Geoffery Baird from Tailwind. but also hand over, some of the more complex work All presentations are archived under “Forecast tasks in the industry to AI.” 2016 – World Tech M&A Report” at our website, DR. KARL POPP, SAP www.corumgroup.com. We invite you to join us for monthly valuation updates the second Thursday of each month. Further, we look forward to seeing you at one of our 150 live tech PRIVATE EQUITY PANEL M&A educational events this year in every major city (profiled in the back of this report). These “For tech companies, the go-to-market model itself conferences and workshops are for sellers – the is just as important in creating a valuable asset as the better educated you are on the complexities that underlying intellectual property. ” derail most mergers, the greater your chances to ROB PALUMBO successfully sell your company. ACCEL-KKR “Nearly every company with a software component is Bruce Milne Conference Chair marketing themselves as SaaS, but the PE and strategic buyer markets are very familiar with what SaaS revenue and technology models really look like.” JOE MANNING THE RIVERSIDE COMPANY “You don’t see many multi-billion dollar markets lacking a SaaS disruptor, so we’ll do investments to gain meaningful share of smaller markets.” Data for this report was compiled by Corum Group, the PETER FREELAND world’s leading seller of privately held software, Internet, BUILDGROUP IT and related companies. For further information, please contact Elon Gasper, V.P. Research at +1 425 455 8281 or [email protected]. “The combination of technology miniaturization, battery tech and pervasive connectivity is going to © 2016 Corum Group Ltd. All Rights Reserved. cause a huge change in the B2B space.” GEOFFREY BAIRD TAILWIND CAPITAL 2 corumgroup.com WORLD TECH M&A REPORT 2016 MARKET SET NEW HIGH TECH MARKETS DIVERGE AS M&A RISES 2015 PUBLIC MARKETS Public stock markets set record highs in mid-2015 before hitting the first correction of the post-financial crisis bull market in August. Despite a rebound, most major indexes finished 2015 still off those all-time peaks by about 4%. However, tech-oriented indexes gained for the year, with the NASDAQ up nearly 6%, diverging from broader indexes. The oil price collapse, volatile Asian markets and interest rate uncertainties continued to weigh on the broader markets, but tech M&A never slowed, powered by the near-perfect combination of factors continuing to make this one of the best times ever to sell a tech company. CORUM INDEX 2014 - 2015 TECH M&A HITS NEW RECORDS 2014 2015 Overall M&A hit an all-time high of $4.7T, and tech M&A set records as well. The Corum Index shows total tech transactions Transactions 3879 4307 up 11%, including a historic 59 “megadeals” of $1B or more. Market Megadeals 46 59 The continuing waves of consolidation represented by these Largest Deal $22B $63B major transactions are one more factor making this a great time for sellers to calibrate and realize strategic value. Private Equity Deals 219 232 Pipeline Our Pipeline readings show Private Equity deals continued to VC-Backed Exits 671 648 take share from direct VC-backed exits, while our Attributes Cross-border Deals 35% 34% metrics show a slight drop in cross-border deals, as the Startup Acquisitions 13% 13% proportion of startup acquisitions held steady, along with Attributes average age of acquired companies. Average Life of Target 14 yrs 14 yrs CORUM TOP Technology companies cannot ignore the help them continue that disruptive success. disruptive technologies changing lives and TEN DISRUPTIVE Each year, Corum composes a list of transforming markets. Even the largest the key trends driving deals, drawn from TECHNOLOGY firms must adapt to these trends or fall transactions in every sector, spanning TRENDS 2016 behind. No technology leader has the hundreds of events, global reports and foresight to always lead the innovation information from conversations with all of curve, so the most successful acquire the the buyers. 2016 has produced a particularly pioneering companies with the expertise to instructive set, described below. ONLINE DIGITAL CONNECTED OMNICHANNEL IOT EXCHANGES CURRENCY FLOW HEALTH SALES SOFTWARE CONNECTING DECREASING FRICTION LINKING PEOPLE TO PURCHASING EMERGING PLATFORMS, CREATORS & IN PAYMENTS & THEIR HEALTH DATA & DECISIONS ANYWHERE, STANDARDS & CONSUMERS EXCHANGES SERVICES ANY PLATFORM ANALYTICS CONNECT ENMESHED AI ENABLEMENT POSITIONING SPORTS & DATA SYSTEMS INTELLIGENCE GAMING SECURITY BLURRING THE LINES PUTTING AI TO WORK BY PIVOTAL LEVELS NEW HEIGHTS IN BUILDING BARRIERS CREATE BETWEEN SOFTWARE & MEANS OF BIG DATA & OF PRECISION & CULTURE AND NEW IN AN AGE OF HARDWARE FEEDBACK UNDERSTANDING FRONTIERS IN TECH BLURRED LINES WORLD TECH M&A REPORT 2016 corumgroup.com 3 TECHNOLOGY ACQUIRERS SET NEW RECORDS MICROSOFT SOARS, GOOGLE SLOWS Microsoft broke through as the top TOP STRATEGIC ACQUIRERS: 2015 strategic acquirer, confirming our predicted sea change in the company’s M&A strategy brought by CEO Satya Nadella. The company’s broad, gap- filling strategy assembled assets in the mobile, security, analytics and enterprise spaces, though it reached for a few others, including stylus maker N-Trig and 3D physics platform Havok, divested by Intel. Second place was shared by Accenture and j2 Global, both just under Even with individual buyers, M&A 2014 2015 Change Microsoft’s total. Internet marketing goes in waves; potential sellers must Accenture 5 19 280% conglomorate j2 continued the active watch for these opportunities, not M&A trend it began a year prior, just their own company’s maturity, IBM 5 15 200% rolling up small businesses globally in when considering exit timing. Cisco 6 11 83% waves, including nine deals announced Apple maintained its quicker post- Microsoft 13 20 54% in October alone. Jobs M&A pace, while the most In contrast, Accenture only recently notable drop in leaderboard position Intel 6 9 50% increased its tech acquisition pace, was Google’s. The company that has Amazon 6 9 50% more than tripling 2014’s total, with topped the charts four of the last five J2 Global 18 19 5% many IT Services deals to strengthen years dropped by over half, which its position against rival IBM. Big Blue was still enough for fourth place. As Apple 9 9 0% also tripled its deal count, with many of the Alphabet reoganization finishes Google 37 16 57% its 15 purchases related to expansion up, though, expect them to fight for WPP 22 9 of its Watson AI unit. the top spot again in 2016. 59% PRIVATE EQUITY BUILDS ON ITS RECORD DEAL FLOW Top Private Equity buyers continued the trend of beating the prior year—Thoma Bravo, KKR andTA Associates. They out the top strategics. Vista Equity underscored that trend were followed by Marlin Equity, returning to the chart after by taking over the leading spot, and doing it with more than a year’s absence. twice the deals of the top strategic buyer. Notable sectors seeing increases in PE activity included Vista traded places with perennial top acquirer Insight Venture security, supply chain management and media technology. Partners, which saw its vigorous deal flow dip only slightly. Though platform-level deals continued, deal flow increasingly ABRY Partners again rounded out the top three. counted on bolt-ons to sustain these levels and deploy the Stability was, perhaps appropriately, the overall story of the PE immense amount of funds amassed and available to successful leaderboard, as the next three also contain the same buyers as technology firms. TOP PRIVATE EQUITY ACQUIRERS: 2015 4 corumgroup.com WORLD TECH M&A REPORT 2016 MARKET VALUATIONS EV/Sales EV/EBITDA 5.00 21.00 4.50 19.00 4.00 17.00 3.50 15.00 3.00 13.00 2.50 11.00 2.00 1.50 9.00 1.00 7.00 0.50 5.00 Q3:13 Q4:13 Q1:14 Q2:14 Q3:14 Q4:14 Q1:15 Q2:15 Q3:15 Q4:15 Q3:13 Q4:13 Q1:14 Q2:14 Q3:14 Q4:14 Q1:15 Q2:15 Q3:15 Q4:15 Corum tracks valuation multiples for publicly traded companies in 30 subsectors within six broad markets: Horizontal, Vertical, 5 REASONS TECH M&A REMAINS STRONG Consumer, Infrastructure, Internet and IT Services.