crossroads of european tech - key capital · 2016-08-17 · 1_ irish software sector report 2015...

1_ IRISH SOFTWARE SECTOR REPORT 2015

the crossroads of european tech

H2 2015 | October Strictly Private & Confidential

2_ IRISH SOFTWARE SECTOR REPORT 2015 3_ IRISH SOFTWARE SECTOR REPORT 2015

Contents

page 06 one: irish software sector analysis

page 14 two: funding growth - investors’ appetite

page 26 three: choosing the best strategy

page 28 four: how key capital can help

IRISH SOFTWARE SECTOR REPORT 2015


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ModernFactory - Early

18th Century

First ReliableSteam Engine

Mechanical Loom

Steam Locomotive

Electrical Generator

Automobile

Integrated Circuit

PCWorld

Wide Web

Portable Smart Divice

loT

1750 20001950190018501800

1st REVOLUTION

Steam

2ndREVOLUTION

Electricity

3rd REVOLUTION

Software

The Crossroads of European Tech

EXECUTIVE SUMMARY

The Path of Technological Advancement

THE THIRD REVOLUTION

After the industrial and technological revolutions of the 19th and 20th centuries we are now on the cusp of a digital revolution driven by a confluence of factors from the WWW to processing power to communications infrastructure. The pace of economic and social change is accelerating exponentially and software is at the core of this change. Ireland has the opportunity to be a strategic part of the next wave of software innovation.Global software

spending to reach

€0.6tn in 2018

Cloud and big data growing at

20-30% per annumGLOBAL PLAYERS STRONGLY POSITIONED for the next wave of consolidation in the key sectors

Financial investors’ dry powder levels at all time highs (€0.9tn in 2014)

Software sector represents 20% of ireland’s gnp

Key strategic growth options remain underexplored

POSITIVE INVESTOR SENTIMENT IN EQUITY MARKETS, WITH SOFTWARE INDICES OUTPERFORMING THE MARKET

Lack of scale, with few Irish companies growing beyond

€10m in sales

69% of Irish tech firms are in software

indigenous software sector to reach€3.8bn in 2020

€2.3bn M&A & €203m capital raising activity in 2014

Lack of late stage growth capital (€5m-€10m) is the BIGGEST CHALLENGE to the sector

Irish software sector generates c.€30bn of exports and employs 52,000 people

64% of Irish indigenous software sales comes from exports

SIGNIFICANT INTEREST in transaction activity in Irish software sector



one

Irish Software Sector Analysis

Rapidly growing into a key sector for Ireland’s economy

– Over the last quarter of a century the software sector has become a critical component of Ireland’s economy representing c. 20% of country’s GNP

– Irish software industry is marked by a unique coexistence of a strong MNC presence and highly innovative indigenous sector stimulating growth with robust network effects

– Due to this, Ireland’s software sector remains one of the global leaders in bringing together MNCs and SMEs

– Including MNCs the industry generated €30bn of exports in 2013 and currently employs over 52,000 people

– The indigenous software sector was estimated at €2.1bn in 2014: - Over 730 companies employing

c. 12,000 people- €1.4bn (64%) is represented

by exports- Primary export destinations are the

US, Canada, the UK and the EU - Expected to grow at c.10% CAGR

to reach €3.8bn by 2020

Strongly positioned indigenous software sector...

INDIGENOUS SOFTWARE MAIN MARKETS (%)Source: Software Industry Advisory Group

TECH FIRMS IN IRELAND BY TYPE (%)Source: Software Industry Advisory Group

INDIGENOUS SOFTWARE COMPANIES REVENUE (€BN)Source: Software Industry Advisory Group, Enterprise Ireland

‘10-’14 CAGR: 13.9% ‘14-’20 CAGR: 9.8%

0.86 0.96 1.00 1.20 1.37 1.57 1.80 1.96 2.14 2.34 2.550.41

0.61 0.72 0.700.76

0.830.90

0.971.04

1.121.20

1.31.6 1.7 1.9 2.1

2.42.7 2.9 3.2

3.53.8

0

1

2

3

4

2010A 2011A 2012A 2013A 2014A 2015E 2016E 2017E 2018E 2019E 2020E

Reve

nue

(€bn

)

Exports Indigenous Sales

35.0% US & Canada

26.0% UK

12.4% N. Europe

12%S. Europe, Middle East and Africa

12.0% S.Europe, Middle East & Africa

2.2% Central Europe,CIS, Russia

8.0% Asia/ Pacific

1.4% Latin America 3.0% Unspecified

69% Indigenous software companies

7% Indigenous non-software

tech companies

24% Multinationals

– Healthy and dynamic early stage / start-up segment- More than 90 start-ups launched

annually- Currently undergoing a period

of transformation with start-ups increasingly focused on applications and internet segments

– Due to small indigenous market, home-grown companies tend to mature faster and learn how to drive their international expansion, however:- Few scale beyond €10m in

sales and most are acquired by international competitors

irish software sector analysisirish software sector analysis

’14 Exports: €1.4bn

Sample size: 1,056


ENJOYING A UNIQUE POSITION BETWEEN THE US, THE UK AND THE EUROZONE: GATEWAY TO EUROPE

– Economic factors contributing to favourable environment:- Strong growth in the US and the UK- Competitive Euro exchange rate- Healthy flow of foreign direct investment

Source: Key Capital Research, Capital IQ, Software Industry Advisory GroupNote: Discretionary disclosure results in the value of M&A activity being understated

2014 Investments into Irish software industry via M&A (€m)

2014 Indigenous software exports from Ireland (€m)

2,137.8 356.2

136.6 479.5

n.a. 364.4

Excl. UK and domestic transactions

SIGNIFICANT UPSIDE AHEAD

– There is still a significant amount of potential growth in the tank for indigenous Irish software companies- Majority are on the small end of the SME scale with only a handful

of companies scaling beyond 100 employees and/or €10m in sales

– However, in 2013 a total of 75 companies reported sales between €5m and €100m, of which- 42 companies with €10m+ sales- 25 companies with €20m+ sales

– Weak VC funding activity for €5m-€10m+ rounds is the key factor limiting the Irish software industry from building a broad pool of indigenous companies with €100m+ sales

INDIGENOUS SOFTWARE COMPANIES BY SALES BAND (€M)Source: Software Industry Advisory Group

0

50

100

150

200

250

0 0-1m 1-3m 3-5m 5-10m 10-20m 20-50m

No.

of C

ompa

nies

Enterprise Software Digital Content e-Learning Softwaree-Commerce Software Financial Software Health SoftwareTelecoms Software Travel Software Internet

“Ireland is an attractive country for companies to invest in as it is English speaking with a skilled workforce and is a gateway to Europe with a sound regulatory environment.”

KEY INVESTMENT AND TRADING PARTNERSSource: Kevin O’Malley, US Ambassador to Ireland

EU countries not in EurozoneEU countries in Eurozone

irish software sector analysis irish software sector analysis


Software spending ranked #1 in 2014, with a 26% share and a total of €409bn Software spending was dominated by three largest sub-segments: applications (43%), middleware (25%) and custom built software (26%)

Rapidly expanding number of internet users, devices, and digital content has created a highly connected, dynamic and well-informed consumer base

Market expansion driven by strong global spending growth in IT, B2C e-commerce and digital advertising

… Supported by robust global macro data

GLOBAL IT SPENDING BY SEGMENT (€BN)Source: Gartner, Media

NUMBER OF INTERNET USERS & DIGITAL CONTENTSource: eMarketer, Cisco

14-’18 CAGR: 5.6% ‘14-’18 CAGR: 22.7%

GLOBAL SOFTWARE MARKET DYNAMICS (€BN)Source: Marketline, Gartner, eMarketer, Wevio

‘14-’18 CAGR: 7.8% ‘14-’18 CAGR: 1.98% ‘14-’18 CAGR: 17.5%

DIGITAL ADVERTISING (€BN)Source: eMarketer

‘14-’19 CAGR: 18.1%

a

bc

d

e

a) 26% Softwareb)19% Computer equipmentc)19% IT consulting and systems integration servicesd)16% Communications equipmente) 20% IT outsourcing and hardware maintenance

a

b

c

d

a) 26% Middlewareb) 25% Custom-bulit softwarec) 43% Applicationsd) 6% Operating systems

SOFTWARE

€1,559bn €409bn

2.89 3.07 3.25 3.42 3.60

0.720.87

1.06

1.31

1.63

0.000.200.400.600.801.001.201.401.601.80

0.000.501.001.502.002.503.003.504.00

2014A 2015E 2016E 2017E 2018E

IP T

raffi

c (Z

B)

Inte

rnet

Use

rs (b

n)

Number of Internat users (bn) Digital Content (zettabytes)

14 32 62 91 121 150 17676 77

9287

8278

75

90109

154179

203228

251

23% 27% 30% 32% 35% 37%38%

0%

20%

40%

60%

80%

100%

0

50

100

150

200

250

300

2013A 2014A 2015E 2016E 2017E 2018E 2019E

Ad S

pend

ing

(€bn

)

Mobile digital ad spending Non-Mobile digital ad spending% of total media spend

409 440 475 512 552

1,115

1,5701,732

1,9312,123

1,559 1,554 1,599 1,643 1,686

500

1,000

1,500

2,000

2,500

2014A 2015E 2016E 2017E 2018E

€bn

Global software spending (€bn) B2C e-commerce sales (€bn)Global IT spending evolution (€bn)

0

irish software sector analysis irish software sector analysis


€100M REVENUES THRESHOLD

INTE

RNET

ON

LIN

E SE

RVIC

ESSY

STEM

SAP

PLIC

ATIO

NS

IT S

ERVI

CES

SELECTED MULTINATIONAL PLAYERS SELECTED INDIGENOUS PLAYERS

Irish company acquired by international firm

Irish competitive landscape – European software incubator

“Our commitment compels us to reinvent businesses continually; grow new ones organically and through acquisitions.”VIRGINIA M. ROMETTY, IBM CHAIRMAN, PRESIDENT AND CEO, 2014

irish software sector analysis

“This (Ireland) is the largest operation we have outside of the US and it is the most diverse office we have outside of the US in terms of the different functions and teams that we have here. ... People talk about the culture here as being one of the strongest examples of what we believe Google to be.”RONAN HARRIS, HEAD GOOGLE IRELAND, 2015



two

Funding Growth – Investors’ Appetite

– Technology has outperformed the markets in the recovery since the crash; the software subsector has outperformed the group as a whole, up 99% since September 2008

– Performance YTD has been impacted by the events unfolding in the Chinese economy, however markets are improving led by positive investor sentiment

– 2015 has been a volatile year for equity markets with performance driven by a number of key events such as the introduction of QE in Europe, the renegotiation of the Troika-Greece bailout package and the selloff in Chinese equities

– The Euro area looks set to grow at c. 1.5% in 2015 and recent upgrades to the Q1 and Q2 GDP growth figures further support this target while corporate earnings are expected to grow at c. 16% (ex. Energy) as regional retail sales and improving credit conditions fuel consumer and business spending. In the U.S., when discounting the impact of the energy sector, corporate earnings are expected to grow at c. 8% supported by a tightening labour market

Equity Capital Markets: Resilient Software stock performance amid existing uncertainties

POST-2008 TECHNOLOGY STOCKS PERFORMANCE (100-REBASED)Source: Capital IQ as of 13/09/2015

YTD TECHNOLOGY STOCKS PERFORMANCE (100-REBASED)Source: Capital IQ as of 13/09/2015

507090

110130150170190210

Sep08 Sep09 Sep10 Sep11 Sep12 Sep13 Sep14 Sep15

MSCI World / Information Technology (Sector Index)FTSE 100 IndexS&P 500 IndexS&P GSTI Software Index

The sector has successfully recovered from Oct-2008 Lehman collapse and the financial crisis that followed

+63%

+99%

+53%

+9%

80859095

100105110115120

Jan15 Feb15 Mar15 Apr15 May15 Jun15 Jul15 Aug15 Sep15

-4%

+5%

-4%-7%

MSCI World / Information Technology (Sector Index)FTSE 100 IndexS&P 500 IndexS&P GSTI Software Index

The ECM markets started recoveringfrom Aug-2015 Chinese markets crash

funding growth - investors’ appetite funding growth - investors’ appetite


SELECTED COMPANIES ANNOUNCED STRATEGIES

- Following a major corporate restructuring in 2015, Google together with other businesses are becoming Alphabet’s subsidiaries

- Diversifies company’s value offering and supports innovation in riskier bets e.g. DeepMind, driverless cars and Project Loon

- Gives investors greater insight into how money is being spent

- While Alphabet will continue focusing its investments on search, data analytics, IoT, security and cloud, it will give itself more flexibility and resources to boost innovation, with a particular focus on web scaling

- Taking a long-term view and investing at the scale of available opportunities and resources

“This new structure will allow us to keep tremendous focus on the extraordinary opportunities we have inside of Google… In addition, acquisitions remain an important part of our strategy and use of capital, and we expect to continue to spend cash on acquisitions and other investments.”

Source: 2014 Google Annual report and investor.google.com

- Increasing global user base and engagement by continuing marketing and user acquisition efforts

- Prioritising mobile applications and big data analytics capabilities

- Continuing investing in hardware and software infrastructure

- Intends to make acquisitions to add specialized employees, complementary companies, products, or technologies

“Our top priority is to build useful and engaging products that enable people to connect and share through mobile devices and personal computers.”

Source: 2014 Facebook Annual Report

- Plans to continue carrying out its global transformation plan launched in 2011

- “Build, buy, partner, and integrate” innovation strategy- Investing aggressively in the growth markets

with long-term opportunities e.g. cloud and IoT and data analytics

- Anticipating a “brutal” consolidation wave

“Over the past year, we have continued to drive change in our business as we prioritized the elements of our portfolio—cloud, security, collaboration, automa-tion, and analytics—that are driving the most value for our customers.”

Source: 2014 Cisco Annual Report

SELECTED COMPANIES ANNOUNCED STRATEGIES

- Since 2012 the company is going through an ambitious business model turnaround aiming at mitigating its historic lack of attention to the cloud segment

- The company seeks to clarify the business, continuing disposing of non-core assets

“Our choice is clear: a model of high-value innovation, rather than commodity technology, products and services. Our commitment compels us to reinvent businesses continually; grow new ones organically and through acquisitions.”

Source: 2014 IBM Annual Report

- Focusing on expanding global user base and increasing engagement

- Developing its multi-app portfolio with a particular focus on mobile applications and general data security

- Continuing investing in own infrastructure to support its growth

- Intends to make acquisitions to add specialized employees, complementary companies, products, or technologies

“We will continue to pursue initiatives that promote the viral growth of our member base, specifically members expanding this base by inviting others.”

Source: 2014 LinkedIn Annual Report

- Focus on product differentiation and compatibility with other technologies

- Continuing investing in infrastructure, including increasing datacentre capabilities

“There are several distinct areas of tech-nology that we aim to drive forward. Our goal is to lead the industry in these areas over the long term, which we expect will translate to sustained growth.”

Source: 2014 Microsoft Annual Report

- Late entrant in the cloud segment, Oracle has been going through a global business model reorganisation around three areas of cloud services (SaaS, PaaS and IaaS)

- Committed to move its product family to the cloud (95% of their horizontal applications and 25% of vertical applications will be migrated to the cloud in 2015) and focusing on aggressive price competition in the market

“An active acquisition program is an important element of our overall corporate strategy and we expect to continue to make acquisitions in the future... In 2013, the total spend on cloud initiatives has doubled as compared to 2011.”

Source: 2013 - 2014 Oracle Annual Report

- Committed to transforming into a mobile-first platform through the development of new mobile products and the enhancement of existing ones

- The company is aiming at bridging digital and physical commerce, heavily investing in its In-store payment solutions

- PayPal demerger from eBay in 2015 indicating that the company is going to remain very acquisitive aiming at expanding both its payments capabilities and geographic spread

“We also expect to continue to evaluate and consider a wide array of potential strategic transactions as part of our overall business strategy”

Source: 2014 PayPal Annual Report

- Development strategy centred around five product categories: cloud computing, database, mobility, analytics and enterprise applications, with its core ERP/business suite offering remaining the key product focus

- While organic growth remains the primary growth of SAP’s strategy, the company will continue to be acquisitive in the market directly or via its Sapphire Ventures arm

“Organic growth remains the primary driver of our strategy. We will continue to invest in our own product development and technology innovation. SAP views acquisitions as strategic investments in people, technology, and growth ”

Source: 2014 SAP Annual Report

Strategic investors: Sector leaders re-organised for the next consolidation wave– Over the past ten years the majority of global software players have

carried out strategic operations restructurings to adapt to the rapidly changing market and refocus their value offering

– The ongoing consolidation in the sector has boosted M&A activity, positioning software as one of the top investment segments, with c. US$120bn worth transactions in 2014

– The latest strategy announcements by global market leaders ensure a positive outlook for 2015-2016 M&A activity levels and are centered around:- Expanding global client base and increasing engagement- Continuous investment in product development, with a particular focus

on cloud, mobility, big data and security- A combination of organic and external business growth, with a particular

focus on new technologies, products and talent acquisition

Sources: Company data, Media

funding growth - investors’ appetitefunding growth - investors’ appetite


CONSTANTLY INCREASING AVAILABLE CAPITAL

– Private equity and venture capital total assets under management (AUM) have expanded strongly over the last 10 years, reaching a record €2.9tn in 2014

– Investor appetite for the asset class remains robust with an additional €373bn of capital raised in 2014

– The strongest fundraising dynamics as compared to 2013 have been seen in buyout (+13%), growth (+11%) and venture capital (+13%)

– As a result, the level of dry powder held by funds reached a record €0.9tn in 2014 (up by €100bn compared to 2013)

€45bn €68bnGrowth Fund Dry Powder VC Fund Dry Powder

– Fund managers are confronted with intense competition, not only with fundraising, but also in finding attractive deals

– Internet and Software represented c. 45% of all the VC deals in volume and value term in 2014

Financial investors: Record dry powder levels in private equity and venture capital industry

PE AND VC DRY POWDER BY FUND TYPE (€TN)Source: Preqin, Media, Brokers

39% Buyout

5% Distressed

5% Growth €45bn

6% Infrastructure

2% Mezzanine

12% Real Estate

8% Venture Capital€68bn

23% Other

PE AND VC AUM EVOLUTION (€TN)Source: Preqin, Media, Brokers

2000-‘14 CAGR: 9.86%

0.3 0.4 0.4 0.4 0.3 0.4 0.6 0.7 0.7 0.8 0.7 0.7 0.7 0.8 0.90.5 0.4 0.4 0.4 0.40.5

0.70.9 0.8 1.0 1.3 1.5

1.8 1.9 2.0

0.8 0.8 0.8 0.8 0.81.0

1.41.7 1.6

1.82.1 2.2

2.52.7 2.9

0.00.51.01.52.02.53.03.54.0

AUM

(€tn

)

Dry Powder Unrealised portfolio value


PE & VC dry powder €0.9tn


– The Irish indigenous software industry enjoys strong support from a broad pool of domestic and international funding providers, with Irish VCs, investment companies and sovereign development funds dominating the investment landscape

– While a multitude of financing options exist for early stage companies, later stage funding gaps remain significant, with only 6% of private placement transactions exceeding €5m in value over the past five years

Only 6% of Deals > €5m

– Irish software companies face challenges in reaching scale and driving their international expansion agendas

– This lack of funding at later stages explains Irish companies’ focus on M&A, LBOs and bank debt options as sources of growth capital

– Public equity issuance remains the most unexplored option, with only 9 Irish companies listed in Ireland, the UK and the US

Funding sources – gaps to be filled in Ireland

NUMBER OF IRISH PRIVATE PLACEMENTS IN SOFTWARE BY TICKET SIZE (%) (€) 2010 - 2015

Source: Key Capital Research

TOP 10 FUNDING PROVIDERS BY NUMBER OF TRANSACTIONS

Source: Key Capital Research

19% Unspecified

1% 30m-100m2% 10m-30m3% 5m-10m

16% 1m-5m

32% 0k-100k

27% 100k-1m

18663

3737332727201610

0 50 100 150 200

Enterprise IrelandNDRCDBIC

Enterprise Equity LimitedDelta Partners

ACT Venture Capital LimitedWayra

Kernel CapitalInvestec Ventures Ireland Ltd

Frontline Ventures

FUNDING THE GROWTH

Source: Key Capital ResearchNote: Based on publicly announced software private placement transactions in Ireland over 5 year period. Arranged in relation to participating deal size

IDEA STAGE

DEVELOPMENT/DEPLOYMENT

CUSTOMER ACQUISITION & MARKET TESTING

EXPANSION

32% of Total Funding< €100k

27% of Total Funding€100k – €1m

16% of Total Funding€1m – €5m

6% of Total Funding> €5m

BUSI

NES

S G

ROW

TH

Funding gap in Irish software market based on 5-year analysis



Irish software M&A activity remained generally stable over the period:

– 104 Irish M&A transactions with a combined value of €4.5bn

– 17 transactions p.a. on average

– Enterprise/ SaaS software has dominated the landscape by value and number of transactions

– Irish Fintech has become one of the most dynamic software segments and been the second largest by M&A activity

– Majority of transactions are carried out by strategic/trade buyers

Note: M&A aggregates are underestimated herein due to limits in the availability of information; a high value of Education Tech deals corresponds to just two consecutive Skillsoft transactions in Feb 2010 and Mar 2014 (€0.9bn and €1.7bn respectively)

Irish software M&A trends: 2010-2015

NUMBER OF SOFTWARE TRANSACTIONS BY PRODUCT VERTICALSource: Key Capital ResearchTotal value of transactions: €4.5bnTotal number of transactions: 104

SOFTWARE M&A BY PRODUCT VERTICAL AND NUMBER OF DEALSSource: Key Capital Research

SOFTWARE M&A BY BUYER GEOGRAPHY AND NUMBER OF DEALSSource: Key Capital Research

NUMBER OF SOFTWARE TRANSACTIONS BY BUYER GEOGRAPHYSource: Key Capital Research

59% Enterprise / Saas

12% Fin Tech

10% Social Media / Consumer Web

3% Gaming

3% Mobile

7% E-Commerce

6% Education Tech

41% United States

24% Rest of the World

17% United Kingdom

18% Ireland

1719

17

12

2118

0

5

10

15

20

25

30

2010 2011 2012 2013 2014 2015

Num

ber o

f Dea

ths

Enterprise / SaaSSocial Media / Consumer Web

Fin TechGaming

MobileEducation TechE-Commerce

42% United States

1719

17

12

2118

1,431

303 122 59

2,274

2850

500

1,000

1,500

2,000

2,500

3,000

3,500

0

5

10

15

20

25

30

2010 2011 2012 2013 2014 2015

Valu

e (€

m)

Num

ber o

f Dea

ls

IrelandUnited StatesUnited Kingdom Rest of the World

Value (€m)



– Private placement activity in Irish software industry has generally followed an upward trend since 2010, with:

– 473 Irish private placements with a combined value of €726m

– Increasing average transaction value, reaching €2m in 2014

– Enterprise/ SaaS software has by far dominated the landscape by value and number of transactions, followed by a very resilient Fintech sector

– While the number of deals fell in 2014, it was a record year in terms of value

– Financial buyers have increased their focus on Ireland in recent years as it has positioned itself as a global tech hub

Irish software private placements trends: 2010-2015

NUMBER OF SOFTWARE CAPITAL RAISINGS SPLIT BY PRODUCT VERTICALSource: Key Capital ResearchTotal value of transactions: €726m Total number of transactions: 473

SOFTWARE CAPITAL RAISINGS BY PRODUCT VERTICAL AND NUMBER OF DEALSSource: Key Capital Research

SOFTWARE CAPITAL RAISINGS BY BUYER TYPE AND NUMBER OF DEALSSource: Key Capital Research

SOFTWARE CAPITAL RAISINGS BY BUYER TYPE Source: Key Capital Research

66% Enterprise / Saas

3% E-Commerce

7% Fin Tech

7% Gaming

6% Mobile

6% Social Media / Consumer Web

1% Music Tech4% Education Tech

71% Financial Buyer

2% Strategic Buyer0.2% SWF Buyer

17% Multiple Buyer Types

10% Unknown

21

62

116

146

99

29

0

50

100

150

200

2010 2011 2012 2013 2014 2015

Num

ber o

f Dea

ls

Enterprise / SaaSGamingSocial Media / Consumer Web

Fin TechMobileMusic Tech

Education TechE-Commerce

21

62

116

146

99

2986

61

101121

203

156

0

50

100

150

200

250

0

50

100

150

200

2010 2011 2012 2013 2014 2015

Valu

e (€

m)

Num

ber o

f Dea

ls

Financial BuyerSWF Buyer

Strategic BuyerMultiple Buyer Types

UnknownValue (€m)



Typical strategic considerations for Irish indigenous software companies …

... to be addressed through the lens of available strategic alternatives

three

Choosing the Best Strategy

OPTIMIZING THE BUSINESS MODEL ENHANCING STRATEGIC CAPABILITIES DEALING WITH MNCS

– Choosing a right balance between product- and services-focused approaches; IT services business verticals have become an increasingly important area of focus

– Key business models: aggregation, social business models, new payment solutions, content delivery and games

– Risk of replication and lack of scalability for non-IP based players

– Adapting the pricing model: up front licence vs. SaaS type model), subscription, advertising, commission, freemium or a combination

– Focus on international expansion:- Need to acquire assets/resources

abroad- Generalists in Ireland but need

to be specialists to compete in export markets

– Technology/IP– Management team– R&D team and sales force – International coverage / access

to global markets– Partnerships

– Selling to MNCs (identifying internal buyer and selling at multiple levels)

– Selling with MNCs (joint products and services bundling/licensing in a single offering)

– Selling for MNCs – Co-developing with MNCs (IP

ownership remains an issue) / Preferential licencing of unused IP

– Raising Investment from MNCs (MNCs venture arm or direct equity investment)

– Learning from MNCs (mentoring, sponsorships, education programmes)

STRATEGIC ALTERNATIVES FINANCING ALTERNATIVES

GROW BUSINESS– Focus on exports– Accelerate organic growth– Invest in R&D– Strategic alliance and JVs– Acquire assets– Strategic merger

DIVEST THE BUSINESS– Trade sale– Partial exit to PE– Spin-off /split-off of

non-core operations– IPO

FUND GROWTH– Private placement– Issue bank debt– Issue public debt– Issue public equity– Issue private equity– Manage liabilities

RECAPITALIZE– Special dividend– Change dividend policy– Large share repurchase– Ongoing share repurchase

Indigenous companies’ strategic considerations

A sale (100% or majority) of a high performing business to a MNC remains the preferred option for many Irish founders. The impact of this has been generally positive for Ireland due to (i) majority of sold companies remaining in the country attracting

further investments, and (ii) the exiting shareholders reinvesting proceeds into Irish software industry. According to the recent market analysis, 35% of Irish indigenous software companies have exit strategies in place, 17% are planning to exit within 3 years.

STRATEGIC ALTERNATIVES

choosing the best strategy



four

How Key Capital Can Help

About Key Capital

Key Capital was established in 2001 and operates from offices in Dublin and London

The group has over 100 employees, 35 of which are investment banking professionals, with experience gained at leading global financial institutions

The group operates in two principal business lines: corporate finance advisory and wealth management

SUPPORTING GROWTH STRATEGIES | UNLOCKING FOREIGN MARKETS | DE-RISKING | MAXIMISING SALE VALUES FOR CLIENTS

KEY DRIVERS

GLOBAL REACH

Key Capital is the exclusive Irish partner to IMAP, the world’s leading M&A partnership. Through this network, we have access to the relationships and expertise of over 40 firms across 35 countries.

Ranked 4th WorldwideTransactions valued up to US$200 million

SECTOR FOCUS

We focus on 4 core sectors where the team has existing advisory experience and augment this with detailed research. Technology is one of these pillars.

Our understanding of the operating characteristics, risks, challenges and opportunities of this sector allows us to add significant value, whether raising capital, buying or selling a business on behalf of our clients.

EXPERTS IN PRIVATE EQUITY AND VENTURE CAPITAL

We have deep relationships in the industry that we can leverage for our clients’ benefit. We also have genuine insight into what drives private equity and venture capital managers – this allows us to add significant value in deal structuring and negotiation. In aggregate we have raised more than €3bn in financing to date.

WE INVEST OUR OWN CAPITAL

Key Capital is the investor in a number of companies both in Ireland and internationally.

This provides us with a tangible investment perspective when we are advising our clients.

We have a number of equity investments in technology companies across the globe.

TIER 1 INVESTMENT BANKING EXPERTISE

Key Capital is managed by individuals with investment banking expertise that is unparalleled in the Irish market.

We frequently introduce our Irish clients to international acquisition opportunities and leverage our network to unlock large international buyer groups when engaged to sell a business.

how key capital can help

Dublin London

Beijing TokyoNewYorkSilicon Valley

Global Technology Reach – IMAP Network

RANKED 4TH WORLDWIDETransactions valued up to US$200 million

SOFTWARE INTERNET ECOMMERCE

SEMICONDUCTORS & HARDWARE IT SERVICES


SELECTED TRANSACTIONS


CORPORATE FINANCE

M&A, restructuring and capital raising, with a strong track record: We have executed €7 billion of M&A, financing & restructuring transactions in the last 10 years

WEALTH MANAGEMENT

Key Capital Private was established in 2006 to provide world-class wealth management services to Irish clients:Individuals | Families | Not for profit | SSA Pension Funds | Approved Retirement Funds

Jonathan Dalton DirectorT +353 1 638 3843M +353 87 411 2663E [email protected]

Tero TiilikainenDirectorT +353 638 3833M +353 86 733 4788E [email protected]

Richard CaseyAnalystT +353 1 638 3835M +353 87 262 6967E [email protected]

Alexandre DemenchukAssociate DirectorT +353 638 3846M +353 86 0455787E [email protected]

Conor MoranHead of Corporate FinanceT +353 638 3831M +353 87 677 6265E [email protected]

Cillian RyanAnalystT +353 638 3842M +353 87 174 2852E [email protected]

Key Capital Corporate FinanceTECHNOLOGY & SOFTWARE CORPORATE FINANCE



Key Capital, Dublin3rd Floor, Huguenot House, St. Stephen’s Green, Dublin 2, IrelandP +353 (0) 1 638 3838www.keycapital.ie

Key Capital, London33 St.James’s Square, London SW1Y 4JS, United KingdomP +44 (0) 20 7769 6799www.keycapital.ie

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crossroads of european tech - key capital · 2016-08-17 · 1_ irish software sector report 2015...

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