AUTOMATION, INTEROPERABILITY, AND SECURITY DRIVE APPDEV & DEPLOYMENT GROWTH APPLICATION DEVELOPMENT & DEPLOYMENT INDUSTRY UPDATE | MARCH 2021 3 Application Development & Deployment Automation, Interoperability, and Security Drive AppDev & Deployment Growth TABLE OF CONTENTS KEY INDUSTRY TAKEAWAYS Key Industry Takeaways Capstone Headwaters’ Technology, Media, and Telecom (TMT) Group is pleased Industry Outlook to share its Application Development & Deployment report. Through our ongoing conversations with active industry players and analysis of trends during Key Trends & Drivers COVID-19, we have identified several key takeaways below, followed by an in- M&A Overview depth overview of industry dynamics on the following pages. Q&A With Silversmith Capital 1. COVID-19 and the resulting need to work from home (WFH) are driving Buyer Universe enterprises to develop more digital products and services, allowing Notable Transactions consumers and workers to learn, shop, communicate and work remotely – which makes AppDev critical to success across the business spectrum. Select Transactions Financing Activity 2. Venture investing in AppDev and DevOps companies soared in 2020 with nearly $7.5 billion invested in over 400 transactions, a 23% increase Public Company Data compared to 2019. Report Contributors 3. M&A transaction growth was even more explosive in 2020 with a 70% Firm Track Record increase in closed deals from 2019 to 2020. 4. Collaboration has been a key theme in AppDev for 2020 and beyond, with exploding demand for communications tools for developers and workers alike, resulting in major acquisitions like Salesforce’s purchase of Slack for nearly $28 billion. 5. The global trend toward digitization is driving demand for more and more software developers, which creates greater opportunities for AppDev providers to sell more product into growing IT departments across the business landscape. Jesse Betzner Vice President, David DeSimone David MichaelsConsumer & Retail AppDev & Deployment Head of TMT Managing Director Managing Director 617-619-3324 858-926-5950 [email protected] [email protected] 2 Application Development & Deployment | March 2021 INDUSTRY OUTLOOK Although COVID-19 disrupted the global economy, it has expedited the adoption of innovative and efficient technological solutions, transforming digital capabilities from advancements to requirements. To stay relevant and competitive in this new environment, executives, on average, have accelerated the digitization of internal and supply-chain operations by three to four years and digitally enabled their suite of products and services seven years ahead of schedule, according to McKinsey’s Global Survey of Executives.1 The Application Development (AppDev) & Deployment industry has provided the necessary software and services for digital solutions amid the pandemic, resulting in an estimated 22.5% compound annual growth rate (CAGR) to reach a global market size of $697.5 billion by 2027, according to ReportLinker.2 Software developers have turned to secure, automated, and interoperable AppDev tools to scale productivity and meet global demand. Top players in the Rapid Application Development (RAD) subsector offering low-code or automated development tools, experienced escalated revenue gains. For example, Anaplan, Inc. (NYSE:PLAN), reported an increase of 25% in total revenue in 2020 year-over-year (YOY) and a 48% increase in annual subscription revenue from its cloud-based development applications, according to its Q4 2021 earnings conference call.3 While the shift to cloud-based software has allowed for greater interoperability, it has increased susceptibility to data breaches, with 27 billion records exposed in the first half of 2020, according to Security Magazine.4 Network and cybersecurity providers have responded to this vulnerability with software and services tailored to cloud. Notably, Tenable Holdings, Inc. (NAS:TENB), reported $440.2 million in total annual revenue for 2020, with recurring revenue from subscription arrangements and cloud-based security solutions, such as Tenable.io., representing 93.6%. “In the end, our commitment to product innovation, focus on cloud and matured prioritization capabilities drove the wind. We also officially launched frictionless assessment globally for the Tenable.io in AWS marketplace in the fourth quarter. Frictionless assessment continuously provides accurate visibility across all cloud-based assets via an easy to use, low risk approach that delivers quick time to value,” said Tenable CEO, Amit Yoran during its Q4 2020 earnings call.5 AppDev & deployment companies have scaled organically to meet demand through technological innovations and new offerings, and through mergers and acquisitions (M&A), acquiring software and related service assets. The industry experienced a surge in M&A transactions due to the global impact of COVID-19 and several trends altering the M&A landscape (see page five). On account of these alterations, and the trends highlighted on the following pages, Capstone expects further industry growth with healthy levels of M&A throughout 2021. David DeSimone, Managing Director “The AppDev sector has incredible tailwinds from the digitization of the global economy which, we believe, will continue to drive outsized growth in venture investing and M&A volume for the foreseeable future.” For additional industry insights and information on Application Development and Deployment Debt, Equity, and M&A advisory services please contact Managing Director David DeSimone at [email protected] or 617-619-3324. 3 Application Development & Deployment | March 2021 KEY TRENDS & DRIVERS INCREASE IN GLOBAL IT CLOUD SAAS extends beyond internal processes, with data sharing 16.1% SPENDING FORECASTED FOR 2021 capabilities for third-party vendors and partners in the supply chain. The Software Services segment of AppDev & Deployment experienced rapid growth in response to companies Top public cloud providers, such as Amazon Web Services requiring improved functionality, user accessibility and (AWS) and Google Cloud Platform, continue to expand support. As a result, service providers rose 33% as targets cloud-based offerings to consolidate enterprise user for M&A in 2020, with businesses embedding these requirements. Of note, AWS announced the launch 180 services as part of their software development strategy. new services and features, including Amazon DevOps In addition to the acquisition of traditional service Guru this past December, according to Amazon’s providers, spending on cloud software-as-a-service (SaaS) (NAS:AMZN) Q4 2020 Investor Relations Report.8 As a is expected to increase by 16.1% in 2021, as it unifies fully managed operations service, DevOps Guru software plus services catering to companies’ full-service continuously monitors cloud-based software applications expectations, according to Gartner.6 alerting developers to operational problems and reporting application metrics. Global IT Spending on Cloud SaaS LOW-CODE COMPOUND ANNUAL $200 31.1% GROWTH RATE, 2020-2025 $175 Low-code software platforms are in high demand as the $138.3 $150 software developer labor shortage persists. For $117.8 $125 $102.0 $101.5 companies with traditional developers, low-code $100 platforms automate simple tasks, increasing the $75 bandwidth of software development and IT operations. Low-code platforms are especially valuable to businesses $50 without in-house software development, as they provide a U.S. Dollars in Billions U.S. Dollars $25 graphical user interface suited for non-technical $0 employees. This has made low-code providers attractive 2019 2020 2021 2022 targets for M&A, notably Amsterdam-based Uniface B.V. Source: Gartner was acquired by Rocket Software, Inc., enabling mission- critical applications to reach the market faster through the INCREASE IN ENTERPRISE IT CLOUD user experience-focused platform (February, Undisclosed). 18.4% SPENDING PROJECTED FOR 2021 The current global Low-Code Development market value is $13.5 billion, and with a 31.1% compound annual growth rate (CAGR) is forecasted to reach $52.1 billion by Enterprise information technology (IT) spending on public 2025, according to Research and Markets.9 cloud computing is expected to rise through 2021, due to increased appetite for on-demand software development and deployment. On the global scale, cloud spending is Global Low-Code Development Market projected to grow by 18.4% in 2021 to total $304.9 billion, according to Gartner. $70 $60 $52.1 Cloud-hosted infrastructure has gained attention among $50 developers as they seek automated solutions for software $39.7 development and deployment. For small to medium- $40 sized businesses, the cloud offers a centralized space with $30.3 the aggregation of software development, testing, and $30 $23.2 $17.7 deployment tools to increase the return on investment $20 $13.5 (ROI) and improve internal operational efficiency. To in Billions U.S. Dollars $10 eliminate dependency on a single cloud provider, 93% of enterprises have adopted multi-cloud strategies, $0 according to Flexera’s 2020 State of the Cloud survey.7 2020 2021 2022 2023 2024 2025 The benefits of utilizing multiple public and private clouds Source: Research and Markets 4 Application Development & Deployment | March 2021 M&A OVERVIEW The AppDev & Deployment industry has experienced M&A Activity exponential growth due to the acceleration of digital 2019 2020 2021 transformations among businesses