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Göttingen Corporate Finance: SaaS Software M&A Market Sector Trends and Valuation Analysis (1Q2019) June 2019

SaaS Software M&A Market - Sector Trends and Valuation Analysis (1Q2019)

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SaaS Software M&A Market

Contents

M&A TRENDS 03

CASE STUDY 04

PUBLIC PEERS 05

SIGNIFICANT M&A TRANSACTIONS 06

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M&A Trends

Quarterly SaaS M&A transaction volume reached an all-time quarterly record of 277 deals in 1Q19. Small and medium-sized SaaS providers with less than 100 employees (56.5% of targets) represented the highest share of acquisition targets in 1Q19. About a third of the total transactions in 1Q19 registered a revenue multiple of greater than 6.0x EV/Revenue. However, targets generating revenue in the range of $50-$100 million posted the highest median revenue multiple of 5.3x EV/Revenue, while targets with revenue of $100 million or greater posted the second highest revenue multiple of 5.0x EV/Revenue. In the context of product categories, the CRM & Marketing product category eclipsed HR & Talent Management in terms of deal count, as the category posted 37 transactions in 1Q19. The highest percentage of deals within HR & Talent Management software was due to improvements in the labor market and all-time high hiring spree, which bolsters demand for HR software from various downstream markets. Notable transactions were Ultimate Software Group (acquired by Hellman & Friedman, $11 billion), Jobvite (acquired by K1 Investment Management) and Sage Payroll Solutions of Sage Group (acquired by iSolved, $94 million). Healthcare software led vertical targets comprising 22.9% of all vertical deals in 1Q19. With the advent of the technology revolution in the context of value-based reimbursement and digital transformation, most of the paper-based activities of the healthcare industry are being updated to automated process which certainly influenced a steady demand for different SaaS solutions. In the purview of region-wise acquisitions, North America dominated the SaaS software M&A market, comprising 67.9% of all deals followed by Europe with 24.5% deals in 1Q19.

37

30

28

27

21 CRM & Marketing

HR & Talent Management

Content / DocumentManagement & BPM

Analytics & BusinessIntelligence

Security

22.9%

15.2%

10.5%8.6%4.8%

4.8%

33.2%

Healthcare

Education

Real Estate

Finance

Retail

Public Sector

Others

Top SaaS Product Categories by Deal Volume (1Q19) Top Vertical Deals (1Q19)

SaaS M&A Activity By Region (1Q19)

North America

Target: 67.9% Acquirer: 75.8%

Europe


Rest of World


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Blackrock’s acquisition of eFront In March 2019, BlackRock Inc., the world’s largest asset manager was reported to be finalising the transaction to acquire 100% in French software company, eFront, that specialises in risk management solutions for finance, real estate, banking, and insurance sectors. Launched in 1999, eFront reportedly has 700 clients across 48 countries as of 2018.

Financial Terms: The all-The all-cash deal valued eFront at $1.3 billion, an increase of almost 4.0x since Bridgepoint Advisers acquired the company for €300 million in 2015.

Valuation: The purchase price represented a multiple of approximately 9.3x eFront's revenue. This represents a sharp hike in valuation levels, since the 4.11x revenue multiple that Bridgepoint had paid in 2015. This can be attributed to the management’s decision to broaden the company’s offerings post acquisition in 2015. eFront’s software helps private equity firms, real estate investors and other financial customers analyse their performance and fundraising, monitor and collect data on their portfolios, meet accounting and regulatory obligations and communicate with investors.

Acquisition Rationale:

BlackRock is looking to acquire eFront to scale up its risk management platform, Aladdin, which is one of its core businesses. Aladdin can predict what a variety of worst-case scenarios would do to a portfolio, including how a 2008-style crash would affect a client’s holdings. Its user base comprises a roster of 225 pension funds, insurance companies, and competing asset managers who pay to license Aladdin based on which of its capabilities they use. The platform, which started out as an internal tool, is being developed as a revenue generator and key to BlackRock’s goal to monetise technology. The high valuation level is indicative of the significant synergies between eFront and Aladdin, as the former is integrated to boost the platform’s capabilities. Aladdin is gaining in popularity and Europe’s largest bank, HSBC, recently signed a deal to offer BlackRock’s Aladdin investment management software to its wealthy customers. Another rationale for the high valuation is the competitive environment, wherein BlackRock had to outbid its nearest competitor HIS Markit, which was also reportedly keen to acquire eFront. BlackRock’s strategy to scale up Aladdin is part of a broader trend within the asset management industry to seek out technology platforms that can facilitate everything from a shift in an asset manager's risk profile to a new regulation banks need to comply with.

Analyst Commentary: "Within the industry, you need to be seen as a force on the technology front. The largest asset management firms are looking to weaponize their technology systems” Paul Sinthunont, Analyst at research and advisory company Aite Group “BlackRock has been on the forefront of innovation in the industry for some time. They obviously see an opportunity here to serve their clients better, improve the platform and potential revenue opportunity.” Macrae Sykes, Analyst with Gabelli & Co.

“[Asset] managers have to offer a broader range of strategies. You want to have one holistic system that processes it all. That's the nirvana.” Caroline Chappell, Principal Analyst, Software Controlled Networking, Analysys Mason.

Case Study

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Trading Multiples of Public Peers

Company Business Description HQ Price Close

($) Market Cap

($ b) EV

($ b) Revenue

($ b) EBITDA

($ b) EV/

Revenue

Alphabet Inc. The Company's businesses include Google Inc. (Google) and its Internet products

USA 1,167.97 809.45 700.03 136.82 40.42 4.93x

Microsoft Corp Develops, licenses, and supports a range of software products, services and devices

USA 125.50 974.17 921.55 110.36 45.32 7.54x

Adobe Inc Provider of digital media and marketing software

USA 275.79 135.88 136.79 9.03 3.19 14.32x

ServiceNow Inc Provider of enterprise cloud computing solutions

USA 270.49 51.00 50.01 2.61 0.11 17.81x

Workday Inc Provides enterprise cloud applications for finance and human resources

USA 200.35 45.87 45.30 2.82 (0.27) 16.05x

Atlassian Corporation PLC

Enterprise software company that develops products for software developers, project managers, and content management

UK 125.13 31.07 30.14 0.87 0.03 26.92x

Shopify Inc Provides a cloud-based, multi-channel commerce platform

Canada 260.62 28.88 26.88 1.07 (0.06) 22.79x

Veeva Systems Inc

Provides cloud-based software solutions for the global life sciences industry

USA 142.08 21.25 20.16 0.86 0.24 23.38x

Splunk Inc

Offers software for searching, monitoring, and analyzing machine-generated big data, via a Web-style interface

USA 132.43 20.02 18.90 1.80 (0.18) 10.48x

Dropbox Inc Provides online file storage and sharing services

USA 23.23 11.03 10.10 1.39 (0.33) 7.26x

RingCentral Inc Provider of SaaS solutions for businesses to support modern communications

USA 122.92 10.06 9.87 0.67 0.01 13.62x

DocuSign Inc Provides cloud-based software for organizations to automate the paper-based processes

USA 53.50 9.19 8.86 0.70 (0.39) 12.64x

HubSpot Inc Provides a cloud-based marketing and sales software platform

USA 181.92 7.65 7.00 0.51 (0.02) 12.73x

Proofpoint Inc Provides software as a service and products for data security

USA 120.82 6.76 6.51 0.72 (0.03) 8.59x

SurveyMonkey Global provider of software as a service (SaaS) and survey software products

USA 17.75 2.19 2.34 0.25 (0.08) 9.22x

Box Inc Provides cloud content management and file sharing service for businesses

USA 20.23 2.97 2.86 0.61 (0.09) 4.70x

Mean 13.31x

Median 12.69x

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Significant M&A Transactions

Date Acquirer Target Deal Value

($ m)

Enterprise Value ($ m)

Target Revenue

($ m)

EV/Target Revenue

27/03/2019 The SimplyBiz Group Defaqto 97 94 17 5.61x

26/03/2019 Bridgepoint Kyriba 160 - - -

22/03/2019 BlackRock eFont 1,300 - - 9.30x

14/03/2019 Envestnet PIEtech 500 - - -

11/03/2019 F5 Networks NGINX 670 - - -

05/03/2019 SurveyMonkey Usabilla 80 - - -

05/03/2019 Tabula Rasa HealthCare PrescribeWellness 150 - - 5.20x

28/02/2019 ACI Worldwide Speedpay 750 - 350 -

19/02/2019 Palo Alto Networks Demisto 560 - - -

12/02/2019 Thoma Bravo Ellie Mae 3,700 - 480 7.50x

28/01/2019 Dropbox HelloSign 230 - - -

23/01/2019 Cision TrendKite 225 - - 8.90x

15/01/2019 Zix Appriver 275 - - 2.80x

15/01/2019 iSolved Sage Payroll Solutions 94 - - 1.90x

08/01/2019 Amazon CloudEndure 200 - - -

02/01/2019 Blackbaud YourCause 157 - - -

Low 1.90x

High 9.30x

Mean 5.89x

Median 5.61x

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About GCF Göttingen Corporate Finance is a leading advisory firm for small to midcap technology driven companies. The firm provides fundraising, M&A and strategic advise to exceptional entrepreneurs and companies. The team combines in-depth investment banking knowledge, a passion for technology, entrepreneurial experience, financial acumen and a keen sense for what will count tomorrow. Clients are companies from various industries ranging in maturity from first product sales to double-digit million in revenues with a strong position in their market segment. GCF‘s commitment is strong as they deliver excellence in deal execution and get things done. Recent transaction:

Göttingen Corporate Finance acts as sole financial advisor to Xpublisher on its successful sale of a 60% stake to Fabasoft AG About the Transaction For the generation of structured content and its automated processing as well as for the digital publishing of content Xpublish-er has developed unchallenged software solutions with its professional cross media editorial system Xpublisher and browser-based XML editor Xeditor. Xpublisher’s products simplify the complexity of XML content creation while providing an easy to use Word-like editing and content management experience. That is why customers such as large publishing and media houses, industrial manufactures from various industry sectors as well as government agencies rely on Xpublisher’s solutions when it comes to creating and managing structured content. Quotes Matthias Kraus, CEO and co-founder, commented: “The team of Göttingen Corporate Finance was great! They guided us through the whole process of the fundraising and their commitment ensured that we found the ideal partner due to their exten-sive network and their industry know-how. We are excited to working together with Fabasoft and look forward to an exciting future.” Timo Peter, Partner at GCF, commented: “With our sector expertise in B2B software, our access to relevant strategic and finan-cial investors and a deep domain understanding of the publishing industry we were able to drive this fundraising to success. This is a milestone transaction within the digital transformation process of almost all public and private organizations as well as within the SaaS sector. About Xpublisher Founded in 2009 and headquartered in Munich, Xpublisher offers intuitive content solutions for scalable and dynamic end-to-end publishing across multiple industries. The company’s flagship products simplify the complexities of digital publishing and provide non-technical users with the best editing and content management experience possible. Xpublisher’s solutions are all web-based, modular, customizable, and maintainable. A key differentiating factor for Xpublisher is the robustness of its tools which enable content to be created and delivered directly to their digital channels (kindle, epub, etc.), unlike comparable tools that require content to be delivered via interfaces. Xpublisher operates a subsidiary in the USA.

About Fabasoft Headquartered in Linz, Austria, Fabasoft is one of the leading software product companies and cloud service providers for digi-tal document control and electronic document, process and file management in Europe. Fabasoft's products are used to dig-itize, simplify, accelerate and increase the quality of business processes - within and across organizational and national bounda-ries. Numerous prominent private companies and public-sector organizations have been relying on the quality and experience of Fabasoft for three decades. Contact

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Jan Huber, Analyst M: +49 157 718 66 993 E: [email protected]

Timo Peter, Partner M: +49 172 888 7848 E: [email protected]

Office: Weender Landstraße 3 37085 Göttingen, Germany T: +49 551 28168380 Website: www.goettingen-cf.com

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