August 2015 MARKET UPDATE INVESTMENT BANKING AND STRATEGIC ADVISORY TO THE TECHNOLOGY, INFORMATION AND HEALTHCARE INDUSTRIES New York San Francisco Washington, D.C. Toronto www.MarlinLLC.com © Marlin & Associates Holdings LLC, All Right Reserved DEAR CLIENTS AND FRIENDS, Dear Clients and Friends, We are not big on valuing companies based on “multiples” – be it a multiple of this year’s or last year’s revenue, EBITDA, net income, book value, or any other lone financial metric. The drivers of value are much more complicated than can be reflected by financial multiples. Sector growth rates, competitive positioning, management strength, scarcity value, strategic fit, expected future unit growth rates, profit expansion potential, and a host other factors have significant impact on enterprise value. Nevertheless, we were somewhat nonplussed to see the multiples paid for several recent transactions including McGraw-Hill’s purchase of SNL and Nikkei’s purchase of the Financial Times. Wow. It is one thing to note that we now have 119 startups valued at more than $1 billion. It is quite another to see these high multiples applied to relatively mature businesses. Are we in a new “bubble”? We don’t think so. Since the beginning of time, very high prices have been paid by buyers with deep pockets for large, unique, strategically valuable properties. To us these were strategic buyers taking advantage of unique opportunities. But we are watching… The attached report focuses on our current sense of the m&a values, activities and trends for the dozen plus sectors that we follow and sometimes lead. • McGraw Hill Financial (NYSE:MHFI) agreed to acquire SNL Financial for $2.2bn – valuing the company at an implied 8.7x Since the beginning of time, very 2015E revenue and approximately 44x 2015E EBITDA; high prices have been paid by buyers • Nikkei agreed to acquire Financial Times Group from Pearson with deep pockets for large, unique, (LSE:PSON) for £844mm (~$1.3bn) – valuing the company at strategically valuable properties an implied 2.5x LTM revenue and 34x LTM EBIT; • PayPal agreed to acquire Xoom for $867mm; • Amadeus IT (SHSE:600718) agreed to acquire Navitaire from Accenture for $830mm – valuing the company at Marlin & Associates is one of the most active firms advising buyers approximately 13.8x 2015 EBITDA; and sellers of U.S. and international middle-market firms that provide software, data, and related services. The firm is based in New York City, with offices in San Francisco, CA, Washington, • Deutsche Börse (XTRA:DB1) agreed to acquire 360 Treasury D.C., and Toronto, Canada. It has been the recipient of numerous Systems for €725mm (~ $794mm); awards including “Boutique Investment Bank of the Year,” “Middle- Market Investment Bank of the Year,” "Middle-Market Financing • Medallia raised $150M from Sequoia; and Agent of the Year – Equity," and “TMT Advisory Bank of the Year.” Marlin & Associates' team of professionals has advised over 200 • Delphix raised $75mm led by Fidelity investments. information-technology transactions. Sincerely, Kenneth B. Marlin www.MarlinLLC.com MARLIN & ASSOCIATES MARKET UPDATE AUGUST 2015 03 Sector Comparison Snapshot 04 Sector Analyses 04 Application Software 05 B2B E-commerce & Marketing Technologies 06 Banking Software & Processors 07 Business Intelligence Software 08 Capital Markets Software & Services 09 Data & Analytics – Financial Services 10 Healthcare Information Software Systems 11 Information & Market Research 12 Insurance Technology 13 Payment Technology 14 Securities Exchanges 15 Security Software 16 Technology-Enabled Financial Institutions 17 Technology-Enabled Healthcare Services 18 19 18 Merger-and-Acquisition Activity Trends Source: Marlin & Associates, Capital IQ and Public sources. All market and operating data is sourced as of 7/31/15. These companies are a sample of firms in the sector as M&A defines it, and do not comprise a comprehensive list of all firms in the sector. M&A calculates mean and median multiples for the sector using data from a set of firms that it believes to be reasonable and which may not be identical to the set reflected above. 02 AUGUST 2015 SECTOR COMPARISON SNAPSHOT: CURRENT REVENUE & EBITDA MULTIPLES Enterprise Value / 2014 Revenue Business Intelligence Software B2B E-commerce & Marketing Technologies Securities Exchanges Security Software Healthcare Info Software Data & Analytics - Financial Services Application Software Payment Technology Tech-enabled Financial Institutions * Banking Software & Processors Information & Market Research Capital Markets Software & Services Tech-enabled Healthcare Services Insurance Technology 0x 2x 4x 6x 8x 10x Enterprise Value / 2014 EBITDA Healthcare Info Software Business Intelligence Software Application Software B2B E-commerce & Marketing Technologies Tech-enabled Healthcare Services Capital Markets Software & Services Data & Analytics - Financial Services Payment Technology Security Software Information & Market Research Tech-enabled Financial Institutions * Securities Exchanges Banking Software & Processors Insurance Technology 0x 5x 10x 15x 20x 25x 30x 35x *Tech-enabled Financial Institutions multiples calculated using Market Cap / Revenue and Market Cap / EBT Source: Marlin & Associates, Capital IQ and Public sources. All market and operating data is sourced as of 7/31/15. These companies are a sample of firms in the sector as M&A defines it, and do not comprise a comprehensive list of all firms in the sector. M&A calculates mean and median multiples for the sector using data from a set of firms that it believes to be reasonable and which may not be identical to the set reflected above. 03 AUGUST 2015 Application Software Public Market Data 5 Year LTM Revenue & EBITDA Multiples 5 Year M&A Application Software Index vs. S&P 500, base = 100 6.5x 350 35x 300 5.5x 29x 250 4.5x 23x 200 3.5x 17x 150 EV / EBITDAEV EV / Revenue EV 2.5x 11x 100 1.5x 5x 50 Aug-10 Aug-11 Aug-12 Aug-13 Aug-14 Aug-15 Aug-10 Aug-11 Aug-12 Aug-13 Aug-14 Aug-15 EV / LTM Revenue EV / LTM EBITDA M&A Application Software Index S&P 500 Company Market Enterprise EV / Revenue EV / EBITDA Revenue Growth EBITDA Margin Revenue (USD millions) Cap Value CY2014A CY2015E CY2014A CY2015E CY2014A CY2015E CY2014A CY2015E Oracle 176,958 164,983 4.2x 4.3x 9.7x 9.4x 3% (2%) 44% 46% SAP 86,047 93,020 4.8x 4.2x 14.1x 12.1x 4% 16% 34% 34% Intuit 29,819 28,234 6.2x 6.1x 20.2x 19.6x 11% 1% 31% 31% CA Technologies 12,886 11,467 2.6x 2.8x 8.3x 7.4x (0%) (8%) 31% 38% Constellation Softw are 9,344 9,564 5.7x 5.2x 39.1x 21.7x 38% 10% 15% 24% Amdocs 9,116 7,714 2.1x 2.1x 11.3x 10.3x 7% 3% 19% 20% Manhattan Associates 4,824 4,716 9.6x 8.5x 35.3x 27.1x 19% 13% 27% 31% NICE Systems 3,809 3,502 3.5x 3.8x 18.5x 14.5x 7% (8%) 19% 26% SolarWinds 3,096 2,850 6.6x 5.6x 20.9x 12.1x 28% 18% 32% 46% Softw are AG 2,369 2,364 2.5x 2.5x 9.9x 8.9x (12%) 2% 25% 28% Paylocity 1,832 1,739 13.6x 10.2x na na 41% 33% n/a 5% Paycom Softw are 1,822 1,813 12.0x 8.8x na 50.1x 40% 36% 15% 18% Zendesk 1,525 1,222 9.6x 6.3x na na 76% 53% n/a n/a SciQuest 382 254 2.5x 2.4x 49.3x 13.8x 13% 3% 5% 18% Trim Mean 13,874 14,017 5.8x 5.0x 19.9x 15.0x 18% 10% 25% 29% Median 4,316 4,109 5.3x 4.8x 18.5x 12.9x 12% 6% 26% 28% Recent Activity Date Acquirer(s) / Investor(s) Target / Issuer Description Announced Patriot National (NYSE:PN) agrees to acquire Global HR Research from In Touch 7/21/15 Holdings and Brandon Phillips for $42mm in cash and stock. Patriot will pay $24mm in cash and issue 1.06mm in shares. Amadeus IT (SHSE:600718) agrees to acquire Navitaire from Accenture for $830mm, valuing the company at approximately 13.8x 2015 EBITDA. Amadeus will finance the 7/1/15 acquisition entirely with debt. As part of the deal, 550 Navitaire employees are expected to transfer to Amadeus. Tieto (HLSE:TIE1V) agrees to acquire Software Innovation for NOK 610mm ($78mm) 6/20/15 in cash. The deal is expected to close during the third quarter of 2015. Source: Marlin & Associates, Capital IQ and Public sources. All market and operating data is sourced as of 7/31/15. These companies are a sample of firms in the sector as M&A defines it, and do not comprise a comprehensive list of all firms in the sector. M&A calculates mean and median multiples for the sector using data from a set of firms that it believes to be reasonable and which may not be identical to the set reflected above. 04 AUGUST 2015 B2B E-commerce & Marketing Technologies Public Market Data 5 Year LTM Revenue & EBITDA Multiples[1] 5 Year M&A eCommerce Index[1] vs. S&P 500, base = 100 13.0x 65x 280 11.0x 55x 240 9.0x 45x 200 7.0x 35x 160 EV / EBITDAEV EV / Revenue EV 5.0x 25x 120 3.0x 15x 80 Aug-10 Aug-11 Aug-12 Aug-13 Aug-14 Aug-15 Aug-10 Aug-11 Aug-12 Aug-13 Aug-14 Aug-15 EV / LTM Revenue EV / LTM EBITDA M&A eCommerce Index S&P 500 Company Market Enterprise EV / Revenue EV / EBITDA Revenue Growth EBITDA Margin (USD millions) Cap Value CY2014A CY2015E CY2014A CY2015E CY2014A CY2015E CY2014A CY2015E NetSuite 7,707 7,593 13.6x 10.2x na nm 34% 34% na 7% Mercadolibre 5,771 5,691 10.2x 8.8x 30.4x 28.5x 18% 16% 34% 31% Shopify 2,826 2,628 25.0x 14.4x na na 109% 74% na na Demandw are 2,685 2,499 15.6x 10.7x na nm 51% 46% na 5% Focus Technology 1,382 1,090 13.3x 9.5x nm 55.7x (0%) 39% 4% 17% Marketo 1,282 1,178 7.9x 5.6x na na 56% 40% na na Constant Contact 860 680 2.0x 1.8x 18.2x 9.2x 16% 12% 11% 20% QuinStreet 259 214 0.8x 0.7x na 14.2x (8%) 5% na 5% ChannelAdvisor 252 190 2.2x 2.0x na na 25% 12% na na Mediagrif Interactive 212 226 4.2x 4.1x 12.6x 10.2x 11% 3% 34% 40% Speed Commerce 14 118 1.3x 0.8x 20.8x 8.7x (60%) 67% 6% 9% Trim Mean 1,726 1,599 7.8x 6.0x 19.5x 15.5x 23% 30% 17% 15% Median 1,282 1,090 7.9x 5.6x 19.5x 12.2x 18% 34% 11% 13% [1] Shopify (SHOP) added to the index as of IPO 5/21/15 Recent Activity Date Acquirer(s) / Investor(s) Target / Issuer Description Announced Medallia (Palo Alto, CA) raises $150mm in a Series E funding round led by Sequoia Capital.