Technology, Media, and Telecommunications (TMT) Quarterly update Q4 2018 Deloitte Corporate Finance LLC | www.investmentbanking.deloitte.com Quarterly update | Q4 2018 | TMT TMT trends In this update Robotic process automation1 Cloud-based artificial intelligence (AI)2 • TMT trends Robotic process automation In 2019, several companies are • Economic outlook (RPA) helps automate tedious, expected to accelerate their time-consuming tasks and can usage of cloud-based AI software • Industry analysis deliver significant value for and services. 70 percent of • Select M&A transactions business leaders through adopters are expected to obtain • Appendix improved quality/accuracy, AI capabilities through cloud- productivity, and cost reduction. based enterprise software, and The RPA market is estimated to 65 percent are expected to grow to $2.1 billion by 2021, create AI applications using This update will focus on news with 72 percent of companies cloud-based development and trends in the following expected to embark on their services. By 2020, penetration areas: RPA journey within the rates are expected to reach next few years. an estimated 87 percent. • Robotic process automation 5G technologies2 DevOps3 • Cloud-based artificial intelligence 5G wireless technology is Business organizations are 5G technologies expected to be widely applied to beginning to see the significance • create a truly interconnected in DevOps, with a 17 percent • DevOps network via mobile and increase in adoption in 2018, • Mergers & Acquisitions fixed-wireless access devices, compared to the 10 percent providing residences with increase in 2017. Within the past broadband in place of a wired year, cloud providers have made Who we are connection. The introduction of significant investments as they 5G smartphones is expected to look to offer open-source tools on Deloitte Corporate Finance LLC trump 4G in both traffic capacity their cloud infrastructure to and network efficiency. Overall, appeal to software developers. is a leading global middle there were 72 operators testing DevOps could soon be the market M&A adviser. The 5G throughout 2018, with that primary focus of businesses in firm’s professionals have number expected to significantly order to help them optimize extensive knowledge in the rise in the near-term. efficiency and deployments. TMT space and use their TMT M&A trends experience to help the firm’s clients maximize value. • The global TMT M&A market has been driven by a wave of mega deals worth in excess of $10 billion, including International Business Machines Corporation’s acquisition Contacts of Red Hat and CommScope’s acquisition of Arris International. This 120 percent increase in deal activity Ron Rivera compared to the same period in 2017 demonstrates Managing Director companies’ appetites for large, strategic deals to stay [email protected] ahead of key market trends. Throughout 2018, M&A +1 (404) 631-3710 transactions are up in nearly all sectors, totaling over 4 $32.0 billion across more than 1,000 deals. Jonathan Ohm Managing Director • General market trends have provided tailwinds to TMT [email protected] M&A deal activity, including the disruption of traditional +1 (212) 436-2287 sectors (e.g., automotive, cybersecurity, etc.) through the rise in software adoption. The need to streamline operations, reduce costs, and engage with customers has Byron Nelson driven demand for cloud-based applications, thus driving Managing Director investor and strategic interest as well. Broad TMT [email protected] sentiment has given rise to optimism that the next few +1 (469) 417-2462 years may offer a strong TMT M&A environment.5 www.investmentbanking.deloitte.com | Page 2 Quarterly update | Q4 2018 | TMT Macroeconomic outlook US gross domestic product1 U.S. Treasury yield curve 2 $20 5.0% 3.5% (nominal vs. real) 3.0% 4.0% $15 2.5% 3.0% 2.0% $10 1.5% 2.0% $ in Trillions 1.0% $5 rate Interest 1.0% YoY Percent Change 0.5% $0 0.0% 0.0% GDP ($ in Trillions) YoY % Growth (Adj. for Inflation) Real Yield (%) Nominal Yield (%) US unemployment rate ISM non-manufacturing index (% unemployed)3 and consumer confidence index4 10.0% 600 64 145 550 62 135 500 60 125 8.0% 450 58 115 400 56 105 Manufacturing - 350 54 95 6.0% % Unemployed 300 52 85 Consumer Confidence ISM Non * 250 50 75 Jobless Claims (Thousands) Claims Jobless 4.0% 200 48 65 ISM Non-Manufacturing Consumer Confidence Initial Jobless Claims Unemployment Rate (%) *An ISM Non-manufacturing index value above 50 signals economic expansion. TMT sector outlook Global technology industry revenue5 Private investment in computers and software5 $3,200 $1,200.0 12.0% $3,100 $1,000.0 10.0% $3,000 $800.0 8.0% $600.0 6.0% $2,900 $ in billions $ in billions YoY Percent Change $400.0 4.0% $2,800 $200.0 2.0% $2,700 $0.0 0.0% $2,600 2015(A) 2016(A) 2017(A) 2018(A) 2019(E) Investment in Computers & Software YoY Percent Change www.investmentbanking.deloitte.com | Page 3 Quarterly update | Q4 2018 | TMT TMT sector breakdown and trading statistics1 LTM NTM Sector Number of % of 52 Median Median Median Median EV/ EV/ EV/ companies Week high revenue CAGR LTM EBITDA EBITDA margin EV Revenue EBITDA EBITDA (3 Yr) ($M) ($M) ($M) Application Software / SaaS 19 87.3 % 9.0 % $966 26.4 % $32,961 7.8 x 20.1 x 18.5 x Internet & Digital Media 15 69.1 25.9 1,714 28.1 33,940 6.6 28.3 14.4 IT Services 9 83.6 8.9 3,052 22.5 34,171 2.2 13.4 10.6 Hardware 17 74.1 4.4 5,486 23.8 32,515 1.9 8.4 7.4 Traditio nal Media 21 85.6 2.7 1,761 18.4 18,695 1.9 10.7 8.6 Teleco mmunicatio ns 20 83.9 2.6 14,646 30.4 84,671 1.7 6.3 5.8 Automotive Technology 8 65.4 4.6 764 15.4 5,686 1.5 10.6 9.0 TMT Index 109 81.7 % 23.8 % $2,547 23.8 % $32,023 2.8 x 10.4 x 8.9 x Public comparables three-year stock market performance2,3 S&P 500 Index 26.68% NASDAQ Composite Index 37.44% Technology Index 55.94% Media Index 18.10% Telecommunications Index 0.87% 100.0% 80.0% 60.0% 40.0% 20.0% 0.0% -20.0% S&P 500 (^SPX) - Index Value NASDAQ Composite Index (^COMP) - Index Value Telecommunication Index - Index Value Media Index - Index Value Technology Index - Index Value www.investmentbanking.deloitte.com | Page 4 Quarterly update | Q4 2018 | TMT Recent transactions December 10, 2018 – Siris Capital Group, LLC and Evergreen Coast Capital entered into a definitive agreement to acquire Travelport Worldwide Limited (NYSE:TVPT), a leading travel technology company. Siris and Evergreen will acquire all outstanding common stock in an all-cash transaction valued at $4.4 billion. Travelport expects to continue running the business as usual, while leveraging the technical expertise of both Siris and Evergreen.1 November 11, 2018 – Vista Equity Partners LLC entered into a definitive agreement to acquire Apptio, Inc. (NasdaqGM:APTI), the business management system of record for hybrid IT. Vista Equity Partners will acquire 100 percent of Apptio’s outstanding stock for $1.9 billion, which represents a 53 percent premium to the unaffected closing price as of November 9, 2018. Apptio’s management believes the flexibility of operating as a private company will allow Apptio to accelerate growth, while continuing its commitment to creating successful customers.2 November 11, 2018 – SAP SE (NYSE:SAP) has entered into a definitive agreement to acquire Qualtrics, a leader in the experience management software category, for $8.0 billion in an all-cash deal. SAP SE and Qualtrics hope to accelerate the new experience management software category by combining Qualtrics’ experience data with SAP’s operational data. The combined company will aim to deliver superior experiences to people, products, and brands.3 November 8, 2018 – CommScope Holding Company, Inc. (NasdaqGS:COMM) has entered into a definitive agreement to acquire ARRIS International plc (NasdaqGS:ARRS), a global leader in entertainment and communications solutions, for $7.4 billion in an all-cash transaction. The combined company will aim to shape the future of wired and wireless communications.4 October 28, 2018 – International Business Machines Corporation (NYSE:IBM) entered into a definitive agreement to acquire Red Hat, Inc. (NYSE:RHT), the world’s leading provider of open source cloud software. IBM will acquire all of the outstanding common stock of Red Hat for $34 billion in an all-cash transaction. The combined company will provide an open approach to cloud, featuring unprecedented security and portability across multiple clouds.5 Annual TMT M&A transaction volume6 7,000 6,209 5,884 6,000 5,773 5,309 5,253 5,192 4,874 4,898 5,000 4,774 3,976 4,000 3,000 Number of Deals of Number 2,000 1,000 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Undisclosed <$100M $100M-$250M $250M-$500M $500M-$1B >$1B www.investmentbanking.deloitte.com | Page 5 Quarterly update | Q4 2018 | TMT Software acquisition activity – strategic acquirors1,2 68 70 Top 10 most active strategic acquirors of software assets by volume 2018 59 2017 60 2016 28 10 50 2015 37 2014 40 18 36 34 12 6 4 28 30 9 Deal volume 9 10 22 13 4 3 18 17 20 15 8 7 8 6 10 4 4 8 10 14 8 9 9 3 10 8 6 3 1 12 10 2 3 2 7 7 2 5 0 2 Alphabet Microsoft IBM Cisco Oracle Constellation Salesforce Intel Intuit SAP Software acquisition activity – financial acquirors1,2 50 46 Top 10 most active financial acquirors of software assets by volume 2018 9 40 2017 2016 6 32 30 5 26 2015 12 5 3 22 22 2014 20 19 19 20 7 5 6 16 7 3 4 3 15 3 2 Deal volume 10 4 5 7 3 4 6 4 4 10 8 5 3 7 5 3 3 5 6 9 2 9 6 5 5 5 6 3 2 0 3 Vista Equity Thoma Bravo Francisco Providence Accel-KKR Marlin Equity Insight