TECHNOLOGY INTERIM M&A REVIEW July 2018 contentS 4 Highlights 6 Macro Overview 8 IPO Market 10 US Technology M&A 14 UK Technology M&A 15 FinTech 17 Cyber Security 17 AI and Machine Learning 18 Public Sector 19 Cloud Software 20 E-Commerce 21 Communications 22 IT Services 22 Media 23 Health 24 UK Listed Risers & Fallers 26 Outlook 3 JUN 30 201 TO 7 1 KEY MacRO StatISTICS KEY M&A StatISTICS M /8 6 6M T DE O C HIGHLIGHTS 3 J 1 U N 30 2018 18 JU 2 0 20 N 62 0 3 6 1 N 3 , 7 U 0 7 J / O 3 T UK tech IPOs 2 8 , 0 8 5 M 6 1 , 5 6 8 7 FTSE techmark 0 2 7 / 2 1 / 3 Global equity markets have had a good run in 0 4 , 2 5 8 1 US tech IPOs FTSE 3 1 the past few years, but for many asset classes 7 3 2 1 0 C 3,532 J +700% the first half of 2018 saw little growth, with U 2 E N D 0 3 3 most equity markets broadly flat. The exception –1% 0 7 7,662 N 2 U 0 is Technology, and in particular large US J 1 8 O T –50% technology companies. While FTSE was flat, the 0% M 6 TO JU 4 6M N 30 NYSE FANG+ Index was ahead 29% in the first 87 20 / 18 80 half and continues to hit new highs. While there 9 7 1 is global pressure building on these FANGS to 0 2 0 TECH M&A patrol the internet, protect consumers data and 3 03/7,511 JU 6,9 N 3 N DEALS pay their taxes, their huge growth continues 7 0 U 1 2 J 20 0 to attract investors. Unlike the cryptocurrency 1 1 8 O – EU (No.) 3 N 30 2018 T JU C O market where Bitcoin prices have crashed over E DEC 3 T M 1 M 6 D 201 6 7 2 4 50% so far this year. ,2 6 2 ,2 874 6 / 2 nasdaQ 2 / TECH M&A ,8 2 The IPO market remains weak everywhere as 7 2 –11% 6 4 , DEALS very low interest rates continue to fuel J 2 U N 7 – global (No.) 1 alternative exit options such as trade sales 7,511 3 0 0 2 and private equity funding, which offer higher 2 6 nyse fang+ 0 M 0 3 +9% 1 value exits. T 8 N TECH M&A O U 2,264 J J U O DEALS T N 2,874 There is still plenty of cash around. Private M –14% 3 6 – UK (No.) 0 equity funds had $1trn of cash at the beginning 2 +29% 0 1 of 2018. The five largest technology groups 7 1 221 9 have nearly $700bn of cash, which is about 1 8 8 20 8 / 30 1 3.5x the level they had in 2010. That level N UK percentage 2 JU 0 2 2 2 +12% 3 1 of dry powder will underpin asset prices for . 0 1 of cross-BORDER 3 6 / 5 M N quite some time, continuing to fund significant 3 DEALS T . U J O 1 J buybacks and M&A deals. 7 O U N 1 US$/GB£ T 0 3 0 2 M 2 0 6 1 1 exchange rate % 8 3 37 The number of global technology M&A deals % C 7 E 3 fell 14%, although comparison is with a strong D / –14% % 3 0 ‘17 2 2017. However, the market remains healthy and D 4 3 4 1.32 E UN .7 C 7 J /2 1 O 4 0 T some valuations are spectacular, particularly 3 2 . 5 0 M 1 3 6 N M 6 6 U J T –2% 2 O M in Cloud Software. The number of deals in 0 T 1 O 7 PRICE to J the UK rose a healthy 12% going against the 2 U 0 N EBIT (x) global trend. One of the main drivers remains UNICORNS 9 3 / 0 2 ‘ the number of overseas acquirers who account 12mth 1 4 8 8 8 for nearly 40% of all deals. This has been 1 J AVerage 0 U 2 248 N confirmed at ICON, with 8 out of our last 10 0 bitcoin (US$) 3 3 0 exits being to an overseas acquirer. N PRICE to +19% 2 U 0 J 1 24.5 8 REVENUE (x) 7 8 6,387 The Year of The Dog is shaping up to be 3 –1% 12mth , 6 similar to the last few years, with Technology / AVerage 0 –54% 6 outperforming the market and some of the 8 8 1 , ‘ 3 valuations of M&A deals look…barking. For 0 1 3 7 1 0 N example, Microsoft, Google, Workday, RELX, 2 3.1 U 1 3 J C E D O Salesforce and Paypal have all paid more than T M +3% 6 12x revenues for their most recent acquisitions. 1 . 3 6 / M 0 . T 3 O 7 J 1 U ‘ N 0 ICON Corporate Finance, 2018 Creating wealth from technology 3 5 MacRO oveRVIEW gloBAL tech M&A DealS (NO.) On the one hand, we have increased political risk with worries about 2800 US trade wars, never ending Brexit ‘‘ negotiations, rising interest rates, North 2600 Confidence is pretty high, despite Korean missiles, Chinese debt, Italian 2400 ‘‘ increased political risk politics, Russian Novichok poisoning and Mr Trump who seems to have 2200 started a Twitter war attacking G7, 2000 China, immigration and whatever else 1800 he can think of. NO. OF M&A DEALS WITH UK tech taRGETS 1600 On the other hand, interest rates 1400 remain pretty low, economic growth 350 is accelerating in the USA, there is 1200 very low unemployment, inflation has 300 1000 moderated and corporate profits are 2009 2012 2015 2018 growing at a good clip, particularly in 250 Technology M&A valUatIONS the USA. 26 3.5 200 Markets had a hiccup earlier in the 24 year but have pretty much ignored the 150 3.0 political risk and have continued to 22 power ahead. 100 20 2.5 Price/EBIT In the UK, interest rates have increased 50 (LHS) for the first time in 10 years but remain NO. OF tech M&A Deals – EUROPE (EU) 18 2009 2012 2015 2018 on the floor. The UK economy has 2.0 16 slowed due to the impact of Brexit 1200 but is muddling along pretty nicely. 14 Price/revenue The currency has partially recovered (RHS) 1000 1.5 in 2018, which may put a break on 12 exports, but seems not to have been 800 seen by the wave of foreign investors 10 1.0 2009 2012 2015 2018 who continue to pour money into the UK 600 to acquire everything from skyscrapers in London to football teams and well- 400 run companies. 200 We have said it before, but this economic cycle has already lasted 0 much longer than expected, and after 8 years of equity recovery one would 2009 2012 2015 2018 have expected the fat lady to have been ‘‘ in full voice some while ago. There are risks but it would seem the supercycle ‘‘ The supercycle is set to continue is set to continue. ICON Corporate Finance, 2018 Creating wealth from technology 7 IPO MARKET US technology IPOs (No.) ‘‘ Unicorns are up 20% THE US IPO MARKET Prague-headquartered cyber security company 74 ‘‘ Avast Software listed in May and has a market The technology IPO market seems, oddly, cap of £2bn. Backed by CVC Partners, Avast 64 to have an inverse relationship with the acquired rival AVG for $1.3bn in 2016 and 60 UK technology IPOs (No.) performance of the listed peer group. While UK-based Piriform in 2017. Adjusted revenue 54 the FANG companies power ahead, boosted 25 for the last financial year was $780m (up 9%) by attractive earnings growth, the number of with adjusted cash EBITDA of $451m, so it IPOs in the US continues to be on the floor. has a really high margin business. The share 38 Having said that, the quality of companies 20 performance since listing has been uninspiring. listing in 2018 has been pretty decent, it’s 31 just the volume is very low. Last year Alteryx, 25 Codemasters is a video game developer Carvana, Cloudera, MuleSoft, Netshoes, Okta, 21 15 specialising in racing games but their share SailPoint, Snap and Switch listed but the 13 14 price movement has been far from quick. performances were fairly mixed, particularly 7 10 Although with a market cap of over £300m Snap which has lost its crackle and is below and trading at nearly 5x revenues, the 2009 2012 2015 1H18 its IPO price. This year, Docusign (document valuation is already pretty racy. signature), DropBox (file sharing), Pluralsight (web development training), Pivotal (software Integrafin provides an investment platform development platform) and ZScaler (cyber for asset management, its shares are ahead security) all listed, and have all increased nearly 50% and already has a market cap of 2009 2012 2015 1H18 share prices by 50-70% since. So perhaps ‘‘ £1.2bn which equates to a massive 15x last that performance will encourage others to list. The No. of US tech year’s revenues. Companies considering listing are: Airbnb, ‘‘ IPOs have collapsed Dell, Lyft, Sonos and Eventbrite. THE UK IPO MARKET OnTheMarket the online property portal raised £30m on IPO, valuing the company at £100m.