March 2019 MARKET UPDATE M&AMARLIN & ASSOCIATES INVESTMENT BANKING AND STRATEGIC ADVISORY TO THE TECHNOLOGY AND INFORMATION INDUSTRIES New York Washington, D.C. Toronto www.MarlinLLC.com © Marlin & Associates Holdings LLC, All Right Reserved DEAR CLIENTS AND FRIENDS, It’s About Revenue Synergies, Stupid: Our March Infotech M&A update Dear Clients and Friends, Please see below for our March Infotech m&a report. As many of you know, over the past 17+ years we have advised on more than 200 successful m&a transactions. We use the term “successful” to mean that the deal completed. But we recognize that investors and acquirers assess if a transaction was “successful” in hindsight. For a financial sponsor, the answer eventually becomes clear. For them, it’s all about exit value. But for a strategic acquirer the answer can be more amorphous - it’s all about whether the acquired firm added enough value to the combined firm to justify the cost – It’s not only about the purchase price, it’s also about the distraction and the disruption – and that means realizing “synergies”. A few months ago, EY- Parthenon put out an insightful series of articles on successful m&a integration. They noted that [for strategic acquirers] “… the identification and realization of synergies are at the heart of M&A value creation”. “…Synergies can be the competitive advantage in a bidding process.” And “… they are a major part of the narrative that executives use to explain the strategic objectives of a transaction to their own boards, shareholders and the market.” Clearly, it is the potential for synergies that can allow one strategic to outbid another (or a financial sponsor). One part of the EY-Parthenon article resonated particularly strongly for us: “… traditional deals tend to focus on cost savings, but revenue synergies typically drive the real value, as cost savings generally allow the acquirer to cover the deal premium and tend to be one-time albeit recurring, whereas revenue synergies can continue to grow….”. We couldn’t agree more. Too often, we see strategics willing to look at only potential cost synergies in evaluating acquisition opportunities. That’s short sighted. It’s the revenue synergies that are likely to add the most net value over time. Facebook didn’t buy WhatsApp for $22bb to save costs; Intel didn’t buy MobilEye for $15bb to eliminate duplicate expenses. These and most other successful Infotech m&a transactions are focused on revenue synergies. Oracle’s $10.3bb purchase of PeopleSoft was all about expanding into new markets; as was Adobe’s purchase of Marketo for $4.7bb. And for that matter, so was Walmart’s acquisition of Flipkart for $16bb and of Jet.com for $3.3bb. The same is true in the middle market where we operate the most. As EY- Parthenon noted: “Long-term growth depends on successful integration that drives revenue growth.” It’s all about the revenue synergies. We enjoy helping buyers and sellers understand the potential for increased net value by coming together. It’s about a lot more than eliminating duplicate expenses. It’s about growing the combined business together for a stronger future. Our March 2019 report on recent m&a transactions, trends, and value in the dozen+ segments of the Infotech world that we follow and sometimes lead can be found below. A few of the more interesting recent transactions include: • ACI Worldwide (Nasdaq:ACIW) agreed to acquire Speedpay • Jobvite (San Mateo, CA) raised $200mm in a Series E funding from Western Union for $750mm, valuing the company at round led by K1 Investment Management, 2.1x LTM revenue and 8.3x LTM EBITDA, • Gong (San Francisco, CA) raised $40mm in a Series B funding • Qlik (Radnor, PA) agreed to acquire Attunity for $560mm, round led by Battery Ventures, valuing the company at an implied 5.9x LTM revenue and • Marlin & Associates client Sermo completed a recapitalization 55.9x LTM EBITDA, with Abry Partners. For more details, please click here. See below for our March Infotech M&A Update. Sincerely, Kenneth B. Marlin | Managing Partner Marlin & Associates | www.marlinllc.com Marlin & Associates is one of the most active firms advising buyers 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 Washington, D.C., and Toronto, Canada. It has been the recipient of numerous awards including “Boutique Investment Bank of the Year,” “Middle-Market Investment Bank of the Year,” "Middle-Market Financing Agent of the Year – Equity," and “TMT Advisory Bank of the Year.” Marlin & Associates' team of professionals has advised over 200 information-technology transactions. MARCH 2019 MARLIN & ASSOCIATES MARKET UPDATE 03 Sector Comparison Snapshot 04 Sector Analyses 04 Application Software 05 Banking Software & Processors 06 Business Intelligence Software 07 Capital Markets Software & Services 08 Data & Analytics – Financial Services 09 Information & Market Research 10 Insurance Technology 11 Payment Technology 12 Securities Exchanges 13 Merger-and-Acquisition Activity Trends Sources: Marlin & Associates, Capital IQ and Public sources. All market and operating data is sourced as of 2/28/18. 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 02 above. MARCH 2019 SECTOR COMPARISON SNAPSHOT: CURRENT REVENUE & EBITDA MULTIPLES Enterprise Value / 2019 Revenue Securities Exchanges Data & Analytics - Financial Services Application Software Payment Technology Banking Software & Processors Business Intelligence Software Insurance Technology Capital Markets Software & Services Information & Market Research 0x 2x 4x 6x 8x 10x Enterprise Value / 2019 EBITDA Business Intelligence Software Application Software Banking Software & Processors Data & Analytics - Financial Services Securities Exchanges Capital Markets Software & Services Information & Market Research Payment Technology Insurance Technology 0x 6x 12x 18x 24x 30x *Tech-enabled Financial Institutions multiples calculated using Market Cap / Revenue and Market Cap / EBT Sources: Marlin & Associates, Capital IQ and Public sources. All market and operating data is sourced as of 2/28/18. 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 03 above. MARCH 2019 Application Software Public Market Data 5 Year LTM Revenue & EBITDA Multiples 5 Year M&A Application Software Index[1] vs. S&P 500, base = 100 9.0x 45x 280 8.0x 230 40x 7.0x 180 35x EV / EBITDA EV / Revenue 6.0x 130 5.0x 30x 80 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 EV / LTM Revenue EV / LTM EBITDA M&A Application Software Index S&P 500 Company Market Enterprise EV / Revenue EV / EBIT DA Revenue Growth EBITDA M ar gin (USD millions) Cap Value CY2018A CY2019E CY2018A CY2019E CY2018A CY2019E CY2018A CY2019E Oracle 198,980 208,365 5.2x 5.2x 11.2x 11.2x 2% 1% 47% 46% salesforce 128,629 127,654 9.6x 8.0x nm 31.7x 27% 21% 11% 25% SAP 117,051 119,714 4.3x 3.9x 15.6x 11.5x 5% 10% 27% 34% Intuit 65,242 64,322 10.3x 9.3x 36.2x 25.9x 11% 11% 29% 36% Workday 43,614 43,040 15.3x 12.1x na 63.5x 32% 26% na 19% Constellation 17,736 17,513 5.7x 4.9x 30.1x 18.6x 23% 16% 19% 27% Paycom Softw are 10,584 10,572 18.7x 14.8x 55.4x 36.5x 31% 26% 34% 41% Amdocs 7,808 7,397 1.8x 1.8x 10.0x 8.5x 3% 2% 18% 21% NICE 6,594 6,564 4.5x 4.2x 18.2x 13.9x 8% 9% 25% 30% Zendesk 6,148 6,179 10.3x 7.7x na nm 39% 34% na 7% Paylocity 4,823 4,719 11.3x 9.4x nm 32.6x 25% 21% 10% 29% Xero 4,556 4,806 13.7x 10.4x nm 52.5x 38% 32% 13% 20% Manhattan Associates 3,588 3,487 6.2x 6.1x 24.5x 26.9x (6%) 2% 25% 23% Softw are AG 2,628 2,444 2.5x 2.4x 8.5x 8.1x (2%) 4% 29% 30% Trim Mean 34,698 34,664 8.2x 7.0x 20.8x 24.5x 17% 15% 23% 28% Median 9,196 8,984 7.9x 6.9x 18.2x 25.9x 17% 13% 25% 28% Recent Activity Date Acquirer(s) / Investor(s) Target / Issuer Description Announced Jobvite (San Mateo, CA) raised $200mm in a Series E funding round led by K1 2/11/19 Investment Management. Jobvite provides recruiting software to companies that engages with potential candidates in meaningful experiences. Gong (San Francisco, CA) raised $40mm in a Series B funding round led by Battery 2/7/19 Ventures. Gong helps sales teams capture more transaction data at the point of sale by automatically recording, analyzing and transcribing sales calls. Productboard (San Francisco, CA) raised $10mm in a Series A funding round led by 2/4/19 Index Ventures. Productboard provides product management software to help companies deliver products to customers, faster. Sources: Marlin & Associates, Capital IQ and Public sources.