Capstone Partners Investment Banking Advisors 2014 AWARD WINNER: Capstone Partners BOUTIQUE INVESTMENT BANKING Investment Banking Advisors FIRM OF THE YEAR SaaS & Cloud M&A and Valuation Update Q2 2015 BOSTON CHICAGO LONDON LOS ANGELES PHILADELPHIA SAN DIEGO SILICON VALLEY TAMPA Capstone Partners CapstoneInvestment BankingPartners Advisors Over a Decade of M&A Excellence 1 Investment Banking Advisors WORLD CLASS WALL STREET EXPERTISE.1 BUILT FOR THE MIDDLE MARKET.TM Capstone Partners TableInvestment Bankingof Contents Advisors Section Page Introduction Research Coverage: SaaS & Cloud 4 Key Takeaways 5-6 M&A Activity & Multiples M&A Dollar Volume 8 M&A Transaction Volume 9-11 LTM Revenue Multiples 12-13 Revenue Multiples by Segment 14 Highest Revenue Multiple Transactions for LTM 15 Notable M&A Transactions 16 Most Active Buyers 17-18 Public Company Valuation & Operating Metrics SaaS & Cloud 135 Public Company Universe 20-21 Recent IPOs 22-26 Stock Price Performance 27 LTM Revenue, EBITDA & P/E Multiples 28-30 Revenue, EBITDA and EPS Growth 31-33 Margin Analysis 34-35 Best / Worst Performers 36-37 Notable Transaction Profiles 39-48 Public Company Trading & Operating Metrics 50-55 Technology & Telecom Team 57-59 Capstone Partners CapstoneInvestment BankingPartners Advisors Over a Decade of M&A Excellence 2 Investment Banking Advisors 2 Capstone Partners CapstoneInvestment Banking Partners Advisors Investment Banking Advisors Observations and Introduction Recommendations Capstone Partners CapstoneInvestment BankingPartners Advisors Over a Decade of M&A Excellence 3 Investment Banking Advisors WORLD CLASS WALL STREET EXPERTISE.3 BUILT FOR THE MIDDLE MARKET.TM Capstone Partners ResearchInvestment Banking Coverage: Advisors SaaS & Cloud Capstone’s Technology & Telecom Group focuses its research efforts on the following market segments: Enterprise SaaS & Mobile & Wireless Consumer Internet Cloud Analytics / Business Intelligence Cloud & IT Infrastructure Cloud Computing / Storage Communication & Collaboration Content Creation & Management Content Delivery Services E-Commerce Consumer, IT & CRM & Customer Service Telecom Hardware ERP, Supply Chain & Commerce Finance & Administration Human Resources Licensed Software Leaders Marketing & Advertising Vertical Markets Capstone Partners CapstoneInvestment BankingPartners Advisors Over a Decade of M&A Excellence 4 Investment Banking Advisors 4 Capstone Partners KeyInvestment Takeaways Banking Advisors – M&A Activity & Multiples LTM M&A Dollar Volume set a new five-year high at $50.1B Private dollar volume decrease offset by higher public company M&A LTM transaction volume reached a new five year high of 970 deals Q2’15 saw 252 deals as strong deal momentum continues following 247 deals in Q1’15 Private company deal volume remained healthy with a quarter of the announced deals having valuations over $100M Middle market deals in the $25-250M range represent nearly 40% of transactions with announced deal values Public transaction volume stands at 17 deals in LTM The median transaction value for public targets of $534M sets a new five year high Median LTM Revenue Multiple paid for private company targets dropped slightly to 3.3x Notable M&A transactions in Q1 Cox Automotive / Dealertrack ($4.5B) SingTel / Trustwave ($850M) Twitter / TellApart ($533M) LinkedIn / lynda.com ($1.5B) Cisco / OpenDNS ($635M) CA Tech / Rally SW ($480M) Raytheon / WebSense ($1.3B) MasterCard / Applied Predictive Tech ($600M) EMC / VirtuStream ($1.2B) Vista Equity Partners / MediaOcean ($594M) The most active buyers include Vista Equity Partners, Google, IBM, Intuit, J2 Global, Yahoo!, Twitter, Oracle, Trimble and Microsoft (sorted by most active) Capstone expects the robust M&A activity and attractive exit valuations to continue in SaaS & Cloud for the next 12-18 months Longer term, there is significant risk that a market correction could negatively impact activity levels and valuation multiples Capstone Partners CapstoneInvestment BankingPartners Advisors Over a Decade of M&A Excellence 5 Investment Banking Advisors 5 Capstone Partners KeyInvestment Takeaways Banking Advisors – Public Company Metrics 5 IPOs were added to the SaaS & Cloud 135 IPOs this quarter had subpar performance Q2’15 stock performance was flat with 3.4% and 1.8% growth for SaaS & Cloud 135 and NASDAQ respectively An anticipated hike in the Federal Funds Rate and concerns around the Chinese economy have tempered investor sentiment Median LTM Revenue Multiple softened to 4.5x, but still represents a healthy multiple Within SaaS & Cloud, median multiples vary considerably between segments ranging from 1.9x to 7.3x in Q2’15 Median LTM EBITDA multiple improved to 19.7x The top 3 segments have posted 30.0x+ EBITDA multiples for the past several quarters Median LTM P/E multiples grew to 32.0x Public markets demonstrate a strong preference for companies growing quickly and investing to solidify market leadership status, confident that future profits will come with scale SaaS & Cloud 135 posted median revenue growth of 20.4% in LTM Revenue growth is expected to slow to 17.5% for the next twelve months SaaS & Cloud 135 posted median EBITDA growth of 12.7% for LTM, and 15.4% EBITDA growth is expected for NTM EBITDA growth drop from 2011 may be attributed to increased OpEx for prioritizing growth over profitability Median gross margins have stayed constant for the past five years and currently stand at 67.5% Cloud & IT Infrastructure and Content Creation & Management top the list at over 80% as newly emerging technologies that enable the cloud to run more efficiently command strong margins Median EBITDA margins consistently decreased from 2011 as companies reinvested to fuel growth but it appears increased scale and/or focus on profitability may be reversing the trend Capstone Partners CapstoneInvestment BankingPartners Advisors Over a Decade of M&A Excellence 6 Investment Banking Advisors 6 Capstone Partners CapstoneInvestment Banking Partners Advisors Investment Banking Advisors M&AObservations Activity & and MultiplesRecommendations Capstone Partners CapstoneInvestment BankingPartners Advisors Over a Decade of M&A Excellence 7 Investment Banking Advisors WORLD CLASS WALL STREET EXPERTISE.7 BUILT FOR THE MIDDLE MARKET.TM Capstone Partners LTMInvestment M&A Banking Dollar Advisors Value LTM M&A Dollar Value set a new five-year high at $50.1B Private dollar value decrease offset by higher public company M&A Q2’15 saw a significant rebound in M&A dollar value, reaching $15B $60,000 $50,000 $40,000 $22,394 $27,671 $24,032 $21,758 $20,534 $30,000 $23,733 $20,000 Total Transaction Value $26,493 $22,968 $24,496 $10,000 $21,188 $22,465 $13,741 $0 2010 2011 2012 2013 2014 LTM Total Private $ Total Public $ Capstone Partners CapstoneInvestment BankingPartners Advisors Over a Decade of M&A Excellence 8 Investment Banking Advisors 8 Capstone Partners LTMInvestment M&A Banking Transaction Advisors Volume by Segment LTM transaction volume reached a new five year high of 970 deals Q2’15 saw 252 deals as strong deal momentum continues following 247 deals in Q1’15 Vertical Market transaction volume has consistently represented 30-40% of the total deal volume 1200 1000 800 362 295 600 238 259 225 99 110 60 49 80 14 18 Transactions 183 52 400 53 59 76 40 51 27 28 7 44 21 23 19 12 57 40 49 50 20 41 25 41 26 51 45 37 10 56 16 22 17 13 31 200 12 35 45 51 33 13 14 40 31 43 26 73 114 33 32 28 91 91 53 62 117 96 25 0 32 39 52 2010 2011 2012 2013 2014 LTM Analytics / Business Intelligence Cloud & IT Infrastructure Cloud Computing / Storage Communication & Collaboration Content Creation & Management Content Delivery Services CRM & Customer Service ERP, Supply Chain & Commerce Finance & Administration Human Resources Marketing & Advertising Vertical Market Capstone Partners CapstoneInvestment BankingPartners Advisors Over a Decade of M&A Excellence 9 Investment Banking Advisors 9 Capstone Partners LTMInvestment M&A Banking Transaction Advisors Volume by Deal Size – Private Targets Private company deal volume remained healthy with a quarter of the deals with announced values transacted at over $100M Middle market deals in the $25-250M range represent nearly 40% of transactions with announced deal values LTM median deal value dropped to $22M, but still represents a healthy median 100% 3 7 8 5 9 1 3 6 11 2 6 1 15 10 90% 10 11 23 7 12 28 19 31 80% 23 28 28 22 29 70% 19 14 17 30 60% 28 30 26 23 26 50% 41 36 53 40% 33 49 53 30% 20% 83 71 79 46 50 10% 43 0% 2010 2011 2012 2013 2014 LTM Total Deals 505 666 697 645 873 953 Deals w/ Value 200 244 219 164 185 200 Median ($M) $20 $20 $18 $25 $25 $22 $0-10M $10-25M $25-50M $50-100M $100-250M $250-500M $500M-1B $1B+ Capstone Partners CapstoneInvestment BankingPartners Advisors Over a Decade of M&A Excellence 10 Investment Banking Advisors 10 Capstone Partners LTMInvestment M&A Banking Transaction Advisors Volume by Deal Size – Public Targets Public transaction volume stands at 17 deals in the last twelve months We observe more transactions with larger deal sizes in the past year The median transaction value of $534M sets a new five year high 100% 90% 7 7 7 7 5 80% 7 3 70% 4 1 60% 1 2 8 4 2 2 50% 4 2 1 3 40% 2 5 1 1 4 30% 4 1 1 3 3 2 20% 4 3 1 2 6 10% 4 1 1 3 3 1 1 0% 1 2010 2011 2012 2013 2014 LTM Total Deals 19 33 27 24 15 17 Median ($M) $293 $305 $332 $207 $481 $534 $0-10M $10-25M $25-50M $50-100M $100-250M $250-500M $500M-1B $1B+ Capstone Partners