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A Secular Tailwind Toward Native Computing By Dmitry Netis & Jordan Rupar / 4.7.2020

Q Advisors is broadening its focus on Cloud Native and DevOps IT infrastructure technologies in 2020 and has made it to KubeCon + CloudNativeCon in San Diego to wrap up 2019. The tradeshow—growing twenty-fold in just four years to 12,000 participants—has become an annual gathering of enterprise IT and software developers coalescing around Cloud Native/ and the related best practices around ITOps (traditional IT operations), DevOps (modern practices for modular software development and IT operations), and AIOps (artificial intelligence-based operations). Q Advisors curated a list of 100 private vendors benefiting from increased investments in the space. In the wake of the global COVID-19 pandemic, Q Advisors believes that corporate networks are likely to see an accelerated shift towards cloud-based and mobility- enabling services which should, in turn, provide an accelerated secular tailwind to cloud native infrastructure and agile software development technologies.

The term “Cloud Native” describes technologies that are used to develop Q Advisors expects 2020 to be a year containerized applications in the cloud built with microservices (a collection of of accelerated migration to cloud loosely coupled modular services) that are managed on agile infrastructure through native computing, with Kubernetes DevOps processes and continuous delivery workflows. Enterprises are beginning continuing to be the most widely to adopt cloud native technologies to replace legacy or monolithic architectures adopted platform. As trusted IT with faster, higher performing, and more resilient cloud applications. At the heart providers for enterprises, MSPs will of this adoption is technology called Kubernetes—an open-source container-based be expected to play a central role in orchestration system for automating cloud application deployment and cloud native deployments by being management, which has become synonymous with the cloud native standard. well-versed in Kubernetes and its container-based management Kubernetes has become a de facto cloud native management platform solidifying framework while offering a robust set its lead over other platform-and infrastructure-as-a-service (PaaS/IaaS) initiatives of DevOps, DevSecOps, AIOps, and like and OpenStack and is enjoying an exponential rate of adoption other managed services around the among all enterprises. However, managing a Kubernetes deployment and broader platform. Q Advisors expects the cloud native rollout can present challenges for organizations without the requisite cloud native shift to drive M&A and IT skillset, as the platform was built by engineers for engineers. This ultimately have a profound impact on the IT creates an opportunity for Cloud and Managed Service Providers (“MSPs”) to infrastructure and managed service package a range of value-added services around enterprise digital transformation provider landscape. projects. Q’s Takeaways

Below are several Q Advisors observations of the cloud native vendor ecosystem gathered from market activity, conversations with clients, and participation at recent Cloud Native/DevOps industry conferences.

1. Evolving Vendor Ecosystem

The sheer number of startup companies attacking the open source Kubernetes communities has been skyrocketing, leading to a highly fragmented vendor ecosystem. We counted over 100 startups, primed for consolidation, which we categorized in our curated vendor matrix. Larger players are also making strides with cloud native technologies. Q Advisors believes IBM’s OpenShift is springing ahead of the pack to give IBM an edge in advancing the power of open source and cloud native applications, while at the same time challenging VMware’s server virtualization status quo. The three horsemen in the race to concur Kubernetes and the next wave of enterprise computing are emerging in IBM/Red Hat, VMware/Heptio/Pivotal, and Mirantis/, in our view.

2. Investments Focus on Pain Points Across Five Segments

While Kubernetes has become a de facto container orchestration tool, it is a highly complex environment, nonetheless, which means more possible pain points in application performance, data storage, service delivery, and security. Q Advisors believes that Kubernetes is opening up opportunities for new infrastructure companies around five main pillars:

Cloud Native Technology Pillars Representative Vendors

• IBM/Red Hat OpenShift and CoreOS (NYSE: IBM); Canonical, I. Kubernetes Management & Orchestration VMware/Pivotal (NYSE: VMW) Rancher Labs, Mirantis/Docker Enterprise, Kontena, Gravitational/Gravity.

II. Data Storage and Massively Scalable • MongoDB (Nasdaq: MDB), Cockroach Labs, NuoDB, PlanetScale. NoSQL Databases

• Datadog (Nasdaq: DDOG), ScienceLogic, Zenoss, New Relic (NYSE: III. Application Performance Management NEWR), /SignalFx (Nasdaq: SPLK), Nagios, Promethius, Graphite, Nagios, Scalyr.

IV. Service Mesh and Service Delivery (with Continuous Integration/Continuous • Boyant, Solo.io, Tetrate, Cloudbees, Harness, Puppet. Delivery (CI/CD) tools)

V. Container Security • CyberArk (Nasdaq: CYBR), Tigera, Palo Alto Networks/Twistlock (with vulnerability mapping, authentication, (NYSE: PANW), Aporeto, Qualys (Nasdaq: QLYS), DivvyCloud, container control and auditing across CloudPassage. containers, apps and cloud environments)

2 3. Emergence of DevOps and Role of MSPs

Cloud native movement is ushering a new era of open source software and developer-centric tools (DevOps) optimized for next-generation cloud architectures. DevOps methodologies introduce a more efficient way to build, test, monitor, deploy and update software, which embrace the concept of agile, such as continuous integration / continuous development (CI/CD). Agile development aims at releasing software updates on a daily basis (and even on hourly basis) versus weeks or months in a sense of traditional software development lifecycle. Q Advisors believes these services represent a logical and key solution offering for MSPs who play a central role as the trusted IT provider in the enterprise migration to cloud-based deployments.

Source: Q Advisors

4. Transformative M&A Activity

M&A activity in the space is characterized by transformative acquisitions within pure-play cloud native vendor landscape and accelerated consolidation opportunities around service providers and MSPs with cloud native offerings.

I. Pure-play cloud native vendor activity: The two transformative acquisitions in the cloud native space include IBM’s$34 billion acquisition of Red Hat and ’s $7.5B acquisition of GitHub. Red Hat’s enterprise-grade Kubernetes management platform, called OpenShift, is the leading container orchestration framework, enabling developers to build cloud-native applications using discrete containers provisioned on any cloud infrastructure. With Github, Microsoft retains its highly relevant agile software development posture in the cloud native race against AWS and Compute Cloud. Q Advisors expects these transformative acquisitions to have a profound impact on IT infrastructure and cloud native vendor landscape.

II. Cloud native MSPs activity: MSPs specializing in cloud native deployments are attracting attention from larger service providers seeking these solutions. These service providers are not only offering DevOps services around platforms like Kubernetes but also enabling applications across Big Data machine learning and of Things (IoT) utilizing cloud native deployments. Hitachi’s acquisition of REAN allowed the IT giant to gain capabilities in cloud native deployments including migration, modernization and other managed services capabilities. Q Advisors believes MSP consolidation around cloud native technologies will pick up meaningfully over the next five years as a result of these value-enhancing capabilities.

3 Key Acquisitions Over 2018 –YTD 2020 Date Acquirer Target Subsector Category

3/10/2020 Cloud Native Vendor Container Delivery

2/18/2020 Cloud Native Vendor IT Software

2/3/2020 Cloud Native Vendor Security

1/7/2020 Cloud Native Vendor Cloud Infrastructure

Cloud Native Application 12/30/2019 Cloud Native Vendor Platform

11/12/2019 Cloud Native Vendor Distribution Software

11/4/2019 Cloud Native Vendor Security

7/9/2019 Cloud Native Vendor Security

7/9/2019 Cloud Native Vendor Cloud Infrastructure

5/3/2019 Cloud Native Vendor Application Packaging

12/11/2018 Cloud Native Vendor Container Management

11/27/2018 Cloud Native Vendor Software-defined Storage

10/25/2018 Cloud Native Vendor Code Hosting

1/30/2018 Cloud Native Vendor Open Source Software

Managed Cloud 1/31/2020 Cloud Native MSP Infrastructure

12/30/2019 Cloud Native MSP Cloud Migration

Managed Cloud 12/3/2019 Cloud Native MSP Infrastructure

12/11/2018 Cloud Native MSP Managed Cloud Services

10/11/2018 Cloud Native MSP Cloud Migration

Managed Cloud 12/11/2018 Cloud Native MSP Infrastructure

4 Conclusions:

• IBM Red Hat’s OpenShift is springing ahead of the pack to give IBM an edge in advancing the power of open source and cloud native applications while at the same time challenging 1. Evolving Vendor VMware’s server virtualization status quo Ecosystem • The three horsemen in the race to concur Kubernetes and the next wave of enterprise computing are emerging in IBM/Red Hat, VMware/Heptio, and Mirantis/Docker

• Kubernetes is opening up opportunities for new infrastructure companies around 5 main pillars: i. 2. Investment Focus on Management & Orchestration; ii. Data storage & Massively Scalable NoSQL Databases; iii. Pain Points Across 5 Application Performance Management; iv. Service Mesh & Service Delivery; v. Container Segments Security

• MSPs will serve as a crucial partner to enterprises in their cloud native adoption cycle. DevOps 3. Emergence of DevOps services represent a logical and key solution offering for MSPs who play a central role as the and Role of MSPs trusted IT provider in the enterprise migration to cloud-based deployments

• Expect transformative acquisitions to have a profound impact on IT infrastructure and cloud 4. Transformative M&A native vendor and managed service provider landscape Activity • MSP consolidation will pick up meaningfully over the next 5 years as a result of MSPs specializing in cloud native deployments

About Q Advisors Q Advisors LLC (www.qllc.com) is a world-class global boutique investment bank formed in 2001 serving public and private companies, PE firms, entrepreneurs and large multi-nationals in the telecom, media, and technology (TMT) sectors. The firm has extensive, global reach, while also providing the personalized service of a boutique advisory firm. Thanks to our partners and senior staff, who come from leading investment banks and operating companies, we leverage extensive industry knowledge and analytical insights to help our clients achieve successful M&A and capital markets transactions.

Dmitry Netis / Managing Director, Head of Business Development / [email protected]

Dmitry brings over 24 years of combined financial and operating industry experience in the telecom, media, and technology sector (TMT). Most recently, he consulted for several public and private companies under the practice he founded and was CFO/COO of CafeX Communications. Prior to this, he spent 12 years as an equity research analyst, 10 of those with William Blair & Company, where he was a founding member of the TMT team, where he established cloud communications and infrastructure software practices. Mr. Netis holds a B.S.E.E. from the University of Rochester, a M.E. from Cornell University, and an M.B.A. from Rensselaer Polytechnic Institute.

Jordan Rupar / Vice President / [email protected]

Jordan Rupar joined Q Advisors in 2012. During this time, she has executed numerous mergers and acquisitions, equity financings and strategic advisory assignments for clients across the TMT industries with a deep focus on cloud communications, software and technology, communications infrastructure (cloud infrastructure, fiber, towers, etc.) and other emerging growth sectors. Jordan received her B.S.B.A. in Finance with Distinction, as well as minors in both Mathematics and Economics from the University of Denver.

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