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SPONSORED BY: THE WINNING COMPANIES 2019 Recognising the UK's most exciting scale-up technology companies As defined by the 2 VIEW OUR AWARD SERIES, VISIT www.megabuyte-awards.com The Emerging Stars awards THE WINNING COMPANIES 2019 Our Award Series PARTNER SPONSORS Emerging Stars Grant Thornton UK LLP is part of one of the world's leading organisations of independent advisory, tax and audit firms. We help dynamic organisations unlock their potential for growth by providing meaningful, forward looking advice. In the UK, we support over 40,000 privately held businesses, public interest entities and individuals nationwide. Our technology industry specialists across the UK and around the globe can work with you to scale your business. Helping you to plan for growth; adapt your processes and controls for changing business models; manage risk; meet regulatory requirements and develop growth strategies. The NatWest team is always looking for new ways to support tech businesses and help them achieve their ambitions. We want to grow alongside the sector and have a dedicated team of Relationship Managers based across the UK. With a local presence and strong financial knowledge, they also have specialist technology, media and telecoms experience across this increasingly convergent industry. By working with our network of partners, the team can deliver services that are tailored just for your business. Contact: Nick Watson, Partner, Tech Sector Leader, TMT +44 (0)207 728 2131 nick.j.watson@uk.gt.com Andy Morgan, Partner, Head of Corporate Finance, TMT +44 (0)207 865 2626 andrew.morgan@uk.gt.com Grant Thornton UK LLP 30 Finsbury Square London, EC2A 1AG www.grantthornton.co.uk Contact: Neil Bellamy, Head of TMT & Services +44 (0)7917 000889 neil.bellamy@natwest.com NatWest TMT 9th floor, 250 Bishopsgate London, EC2M 4RB Search: NatWest TMT Security may be required. Product fees may apply. Over 18s only. Any property used as security, which may include your home, may be repossessed, if you do not keep up repayments on a mortgage or other debts secured on it. Revealing the UK's Top 50 best-performing, privately-owned, mid-market technology companies. Talent spotting the UK's future mid-market leaders among earlier stage public and privately-owned companies. Looking beyond share price to identify the UK's best-performing, publicly-listed mid-market technology companies. Megabuyte Award Series Identifying the best-performing companies in the UK technology sector 3 PUBLISHED IN CONJUNCTION WITH THE Emerging Stars awards and EMERGING STARS SHOWCASE Conference Welcome & Contents Ian Spence FOUNDER & CEO, MEGABUYTE Accelerating Welcome to the 2019 Emerging Stars report. Before you dive into what is once again a fascinating insight into the health of UK enterprise technology scale-ups, I wanted to make a few high-level observations. The title of my foreword last year was 'Rude Health' reflecting the fact that the Emerging Stars companies were demonstrating fantastic metrics, especially organic growth. Fast forward 12 months and our annual Scorecard Lite exercise has revealed that this outstanding financial performance has actually been bettered by the 2019 cohort. Average organic growth from this year's Emerging Stars companies topped 50%, up from 37% in 2018. And that's average growth. Even taking into account that these companies are growing from a smaller base, this is an outstanding performance. WELCOME TO THE Emerging Stars awards 2019 Glossary Report Acronyms MBO Management Buyout SBO Secondary Buyout P2P Public to Private IPO Initial Public Offering FPO Follow on Public Offering Peer Group Acronyms Software AES Accounting & Enterprise Software BIS Banking & Insurance Software GHS Government & Healthcare Software ISS Industry Specific Software SIS Security & Infrastructure Software ICT Services DCH Data Centre & Hosting Services IS Infrastructure Services ITC IT Consulting TS Telecoms Services And this performance is all the more impressive when we consider that the vast majority of these companies are profitable; some very profitable. This year's top company ENSEK demonstrates this point better than any, with revenues more than doubled in the year, and yet generating margins of over 30%. At a time when so many smaller tech companies wear their losses as a badge of honour, the Emerging Stars prove that the best companies can generate fantastic growth and make a decent profit. As I assess the funding outlook for loss-making tech businesses, I have a strong feeling that the notions of profit and sustainability will return to fashion before too long. Given the outstanding growth and profit metrics of our Emerging Stars cohort, it is little wonder that the private equity industry is increasingly looking to this group of companies for returns. It is striking that, last year, all of the top five Emerging Stars companies were owner managed whereas, this year, all have external backing. Indeed, only three of the top ten are owner managed this year compared to nine last year. As well as established lower mid-market investors, a clutch of new tech-focussed funds have sprung up to target the lower mid-market. I believe that this trend is to be celebrated for two reasons. If founders are able to take some money off the table at a relatively early stage of a company's development and de-risk their personal financial situation, then their companies are more likely to continue on as independent entities for longer, to the benefit of the UK tech sector. Also, the rigour of private equity ownership should, by-and-large, make them stronger companies. Arguably the downside of greater PE ownership is focus on the five-year plan at the expense of longer-term ambition, but I see this as a fair trade-off. So, these are my key take-aways from the report but there is much more detail to get your teeth into so please read on. As ever, I must close with a heart-felt thank you to all of our Emerging Stars sponsors, and to our programme partners NatWest and Grant Thornton in particular. Their ongoing support enables us to celebrate these great companies, which represent the future of this increasingly important part of the UK economy. Document Information All share prices and valuations quoted are as at the close of business on 8 February 2019. Published by the team at megabuyte The Blade, Abbey Square, Reading RG1 3BE 0118 948 5850 | info@megabuyte.com www.megabuyte.com megabuyte 2019 CONTENTS Executive Summary 4 The Megabuyte Scorecard 6 The Emerging Stars Performance Overview 8 The Emerging Stars Top 25 Rankings 10 The Emerging Stars Individual Award Winners 12 The Strongest Performing Peer Groups 18 Ownership Structure 20 Corporate Activity 22 Prospects for Megabuyte50 & Megabuyte Quoted25 24 Executive Summary As a research team, our workflows depend on our ability to draw on and comprehend a significant amount of available company data, especially when trying to evaluate broader sector trends and a company's place within them. The Megabuyte Scorecard is now an intrinsic part of this process and, having tailored the methodology to businesses with revenues of between 3m and 10m, we have been able to identify and celebrate the latest batch of top performing scale-up companies. In this report, we expand on the Scorecard methodology, provide analysis on the 2019 Emerging Stars, review what last year's winners have been up to, and look at which companies might break out into our two other flagship Awards programmes: Megabuyte50 and Megabuyte Quoted25. The INDUSTRY LEADERS OF THE FUTURE 4 Find out more about our awards and view all Emerging Stars 2019 winners at www.megabuyte-awards.com 5 PUBLISHED IN CONJUNCTION WITH THE Emerging Stars awards and EMERGING STARS SHOWCASE Conference Executive Summary Shaun Lynn CEO, Agilitas IT Solutions Best Performing Company 2019 (IS) Emerging Stars 2018 Top 25 Company Being recognised as part of the Emerging Stars programme in both 2017 and 2018 highlights the stellar progress our organisation has made in delivering not only strong growth but in a sustainable, profitable way as well. The Emerging Stars awards THE WINNING COMPANIES 2019 DEFINING A SCALE-UP BUSINESS We officially launched the Megabuyte Scorecard in early 2015, which now not only underpins our day-to-day research work at Megabuyte but also our annual Megabuyte50 and Megabuyte Quoted25 Awards. However, in analysing smaller companies, we needed a system that reflected the differing priorities of earlier stage companies, namely on growth. So, in early 2017, we developed Scorecard Lite which still uses three years of accounts and relies on a full financial model for each company. Unlike the Megabuyte50 and Megabuyte Quoted25 Awards, Emerging Stars looks at both public and private companies within the revenue size range. INVESTING FOR GROWTH Now in the third instalment of the Emerging Stars programme, we have grown the pool of companies that fit the Emerging Stars revenue criteria to around 250. Hence, the 25 companies to make it into this year's Emerging Stars can be confident that they are among the top 10% of all companies we track in that size range. With an average organic growth in their last financial year of 50% and average EBITDA margins of 16.0% this is a formidable group indeed; Emerging Stars companies are growing twice as fast as the 2018 Megabuyte50 and Megabuyte Quoted25 winners, albeit at circa half the average profit margin, reflecting their focus on investing for growth. Delving into the 25 Emerging Stars in greater detail shows that only five of the businesses from last year's Emerging Stars retained a top 25 ranking, with the high levels of churn reflecting the fact that many of these business find themselves more of a target than an acquirer, and there is an inherently higher volatility in financial performance in this size range, while some outgrew the revenue criteria. Looking at the distribution by sector shows an even split between Software and ICT Services, marking a shift from last year's skew towards the latter. Accompanying this resurgence in Software companies was a greater proportion of externally funded companies, which broadly matched the total of owner managed businesses, while the number of publicly-listed companies remained limited, albeit increasing on last year's first ever publicly-listed Emerging Star. 2019 AWARDS In addition to identifying the 25 Emerging Stars, the programme also recognises the very best companies in all nine Software and ICT Services peer groups, as well as the leading company overall and the highest-growth company. As a result, there are 11 Awards, all identified on pages 12-17. EMERGING STARS ATTRACT OVERSEAS BUYERS Looking back at the corporate activity of last year's Emerging Stars class shows a limited level of deal activity over the last year, reflecting the fact that Emerging Stars find themselves as more of a target than an acquirer. Key highlights include five being acquired by trade buyers, including a clear interest from North American trade buyers in UK software companies, and four companies receiving investment for the first time. THE NEXT MID-MARKET COHORT As well as spotting the future of the UK tech industry, the Emerging Stars programme acts as an early warning system for the Megabuyte50 and Megabuyte Quoted25 companies, as highlighted by four Emerging Stars from previous classes finding success in our Megabuyte50 Awards. From the 25 Emerging Stars, we have identified 10 prospects that, based on their current revenue growth trajectories, look likely to exceed the Emerging Stars upper revenue limit of 10m in their next set of results, and, assuming continued profitability, are strong candidates for the next edition of our private company-focused Megabuyte50 Awards. There are no prospects for the Megabuyte Quoted25 programme, although there is every chance that one or more of this year's Emerging Stars could undertake an IPO. 6 WHAT DOES A 'GOOD' TECH SCALE-UP COMPANY LOOK LIKE? The Emerging Stars programme aims to talent spot future mid-market leaders among smaller, UK private and publicly-listed companies. While some of these companies are relatively young, many have been operating for many years but have recently found a rich growth seam. While there are many awards programmes in the UK tech sector, Megabuyte Awards are unique in being based purely on publicly available information or undisclosed audited numbers provided in confidence, on which the Megabuyte research team builds financial models for each company, that are evaluated by our proprietary Scorecard methodology. We feel that this trumps other awards, which rely on one narrow measure, or (often over-optimistic) self-certification by nominated companies. HOW DOES IT WORK? The Megabuyte Scorecard is a proprietary benchmarking methodology developed by the research team at Megabuyte, pooling over 60 years of combined experience assessing the performance of software, IT and telecoms services companies. Compared with the seven key measures used for the Megabuyte50 and Megabuyte Quoted25 methodology, the Scorecard Lite system used for Emerging Stars assesses five key measures and is more focused around growth; two for revenue growth, one for profit margin and one for margin improvement, as well as one for overall size. These measures are then weighted to provide what we feel is the optimum balance for scale-up companies. Our PROPRIETARY BENCHMARKING METHODOLOGY An expert tool for companies and the investor and advisory communities seeking to understand companies' performance relative to peers. How to track Scorecard performance on a rolling basis Megabuyte Scorecard ratings for companies, peer groups and sectors are produced on a rolling basis, adjusted daily, and available to Megabuyte subscribers via the megabuyte.com content platform. Selected Scorecard rankings are also published in our report series, available to non-subscribers to purchase at www.megabuyte.com/reports Research Resources The Emerging Stars awards THE WINNING COMPANIES 2019 The Megabuyte Scorecard WHO QUALIFIES? Companies eligible for the Emerging Stars programme are drawn from the peer groups we cover in the broader Megabuyte universe; namely software and ICT companies. For a company to be considered, it must also be UK-headquartered and domiciled, have generated revenues of 3-10m in its latest financial year, and have up-to-date accounts for a three-year period. Companies that have undergone significant M&A or other such transformational events are excluded. A Growth In assessing a company's revenue growth, we have struck a balance between our view that organic growth is preferable, whilst still acknowledging that acquisitions are an additional way to grow. A Profitability Whilst scale-up companies quite often lose money during their formative years to support growth, we reward companies who also do so profitably, using EBITDA margins as the optimal measure of P&L profitability. Margin improvement is also a key measure used in Scorecard Lite. A Size While size does not mean that a company is good or bad, the law of large numbers does mean that it is harder to generate organic growth, in percentage terms, as a company gets larger. As a result, we give some credit to the larger companies. IT'S ALL ABOUT THE QUARTILES Once we have assembled all the data, we group performance in all five categories into quartiles and apply a score to each quartile this gives each company a primary score. By segmenting performance in this way, the potential distortion from outliers is neutralised and it also gives a clear view of strong areas, and areas of improvement for each company. Throughout the report, readers will see a company's primary score represented in our Quartile Radar charts, an example of which is shown in Figure 2. Each company's primary score is then weighted according to our proprietary methodology, and each company is ranked within its quartile to provide the final Megabuyte Scorecard rating. FIGURE 2: ...To Generate a Score FIGURE 1: Combining Factor Performance... Source: Megabuyte Size Organic Growth Revenue CAGR EBITDA margin improvement EBITDA margin 7 VIEW OUR AWARD SERIES, VISIT www.megabuyte-awards.com Analysing the EMERGING STARS OF 2019 Investing for growth Megabuyte is now tracking more than 1,200 companies across Software, ICT and Business Services sectors in the UK mid-market. Within this, we track more than 250 UK Software and ICT businesses that sit in the Emerging Stars programme's 3-10m revenue criteria, of which an overwhelming majority are privately owned and 162 have a Scorecard Lite rating. These figures do, however, understate the total number of smaller, more 'emerging' companies known to Megabuyte, as we are tracking more than 1,000 monitor list companies, which are yet to publish detailed accounts. Table 1 shows the quartile performance of the entire 162 Scorecard Lite dataset. When we look at the Emerging Stars companies in the context of the data, we can see that, on average, Emerging Stars companies produce financial metrics in the top/fourth quartile, and often well above the quartile boundary. As a group, the 2019 Emerging Stars companies delivered average organic growth in their last financial year of 50% and an average revenue CAGR over the last three/four years of 48%, both more than double the top/fourth quartile boundary. While many of these businesses are investing heavily to support this growth, with a few loss-making businesses present in the 25 this year, the cohort averaged 16.0% EBITDA margins and had a median year-on-year margin improvement of 3.6 percentage points (pp), both positioned in the fourth quartile. The average revenue size of the Emerging Stars is 7.1m (third quartile). For added context, this year's Emerging Stars generated similar margins to last year's winners but outperformed in terms of growth metrics; the 2018 cohort averaged 37% organic growth, a 35% CAGR and 2.7pp average margin expansion. Additionally, the growth metrics from this year's Emerging Stars are more than double that of the 2018 Megabuyte50 and Megabuyte Quoted25 winners, although margins are closer to half, reflecting greater growth investment at this size range. 8 The Emerging Stars awards THE WINNING COMPANIES 2019 The Emerging Stars Performance Overview Paul Ellis CEO, Wax Digital Emerging Stars 2019 Top 25 Company Emerging Stars 2018 Top 20 Company Being part of the Megabuyte Emerging Stars Awards programme provides independent validation of our relative financial performance in what is a competitive and fragmented e-learning software market. What's more, alongside our strengths, the Megabuyte Scorecard is a useful tool to see where we can continue to improve. TABLE 1: How the Megabuyte Emerging Stars Universe Performs Size Revenues (m) Organic Revenue Growth Revenue CAGR EBITDA Margin EBITDA Margin Improvement 1st Quartile Boundary 4.6 -3.3% -1.2% -7.0% -3.2 2nd Quartile Boundary 6.4 5.0% 5.2% 5.7% -0.2 3rd Quartile Boundary 8.5 20.0% 14.8% 13.7% 2.2 4th Quartile Source: Megabuyte BALANCED SECTOR SPLITS Looking at the distribution of Emerging Stars companies across our two tech Sectors, this year featured a more balanced split between Software (13) and ICT Services (12). Segmenting it further shows that our most populous peer groups, Telecoms Services and Accounting & Enterprise Software, accounted for ten of 25 companies, followed by Government & Healthcare Software and IT Consulting at three each. The peer group with the fewest Emerging Stars was Banking & Insurance Software with one company. FIGURE 4: Composition of ES by peer group FIGURE 3: Composition of ES by sector 9 Source: Megabuyte PUBLISHED IN CONJUNCTION WITH THE Emerging Stars awards and EMERGING STARS SHOWCASE Conference TS DCH ITC IS AES BIS SIS ISS GHS 2017 2019 Software ICT Services 9 13 16 9 12 16 The Emerging Stars awards THE WINNING COMPANIES 2019 EMERGING STARS 2019 RANKINGS Presenting the 2019 Emerging Stars The tables in this section summarise the key data, Scorecard rankings and scores of the class of 2019, as well as how the companies have moved relative to last year. We focus on the peer group category Award winners in greater detail in the next section but, here, it is interesting to look at some of the high-level dynamics of the group. When we look at who's in, who's out, who's up and who's down, it is clear that the number of new entrants was similarly high this year (20 in total), which is driven by the fact that half of last year's Emerging Stars have either been acquired (more details on which can be found on page 23) or outgrown the size criteria. Close to half of this year's new entrants have been added to Megabuyte coverage since the last Awards, including the winners of this year's overall best performing company ENSEK and the fastest growing company HeleCloud. Of the five returners, three have climbed the rankings, including Beeks and Agilitas breaking into the top ten and Wifinity maintaining a top five spot for the third year running. Breaking down the 25 by ownership shows that, while owner managed businesses are fairly balanced with externally funded ones 12 to 10, externally funded vendors dominate the top half of the table, including holding the top four spots. The top owner managed business is PRISYM ID, which placed sixth overall. The top publicly-listed company is Beeks Financial Cloud, which became the first publicly listed Emerging Star in last year's Awards and improved its ranking this year to break into the top five. As we saw in the sector analysis in the prior section, this year's Emerging Stars were evenly split between Software and ICT Services companies, which fed into a similarly even split in the top 10. Jon Slade CEO, ENSEK Overall Winner 2019 & Best Performing Company 2019 (ISS) Being recognised in the Emerging Stars Awards independently validates the strength of ENSEK's business model and strategy to our Board, employees, customers and investors. Find out more about our awards and view all Emerging Stars 2019 winners at www.megabuyte-awards.com 10 11 PUBLISHED IN CONJUNCTION WITH THE Emerging Stars awards and EMERGING STARS SHOWCASE Conference The Emerging Stars awards THE WINNING COMPANIES 2019 The Emerging Stars Top 25 Rankings Rank Trend Company Peer Group Ownership Investor Revenue (m) Score Prev Rank 1 NEW ENSEK Overall Winner & Best Performing Company (ISS) ISS Externally Funded LDC 6.2 95 2 Wifinity Best Performing Company (TS) TS Externally Funded Literacy Capital 8.8 87 3 3 NEW Ticketer ISS Externally Funded Tenzing Private Equity 9.4 84 4 NEW HeleCloud Overall Fastest Growing Company & Best Performing Company (ITC) ITC Externally Funded BGF 3.1 83 5 Beeks Financial Cloud Best Performing Company (DCH) DCH Public 5.6 83 24 The Top 5 Performing Companies Higher Lower New entrant NEW Rank Trend Company Peer Group Ownership Investor Revenue (m) Score Prev Rank 6 NEW PRISYM ID Best Performing Company (GHS) GHS Owner Managed 7.5 83 7 NEW Safety Media Best Performing Company (AES) AES Owner Managed 4.9 83 8 NEW Celoxica Best Performing Company (BIS) BIS Externally Funded Oxford Capital Partners 3.6 80 9 Agilitas IT Solutions Best Performing Company (IS) IS Externally Funded NVM Private Equity 9.5 80 23 10 NEW Answer Digital ITC Owner Managed 6.3 79 11 NEW Impero GHS Externally Funded Investcorp 6.6 79 12 NEW CIPHR AES Externally Funded LDC 9.3 78 13 Telesis TS Owner Managed 8.1 77 5 14 NEW Egress Software Best Performing Company (SIS) SIS Externally Funded FTV Capital 9.4 76 15 NEW Qubic Group TS Owner Managed 5.9 76 16 NEW Digitalk TS Owner Managed 8.7 76 17 NEW Unicorn Training Group AES Owner Managed 9.1 75 18 NEW Interact AES Owner Managed 9.6 75 19 NEW EU Supply GHS Public 4.7 74 20 NEW Chorus Global ITC Owner Managed 5.6 74 21 Wax Digital AES Externally Funded August Equity 6.6 73 18 22 NEW CloudCall Group TS Public 6.9 73 23 NEW Volta Data Centres DCH Owner Managed 5.3 73 24 NEW Freestyle IT IS Owner Managed 9.0 72 25 NEW IMS Evolve SIS Owner Managed 8.6 72 Emerging Stars companies 6-25 The Emerging Stars awards THE WINNING COMPANIES 2019 EMERGING STARS Award Winners Recognising the UK's best-performing future mid-market leaders among smaller, private and publicly-listed companies. In addition to the accolade of being a Megabuyte Emerging Star, we also recognise the leading companies in all nine peer groups, the Fastest Growing Company and the Best Performing Company overall. Here, we congratulate our 2019 award winners and provide some detail on their Scorecard performance. Before we look at each of these companies individually, first a word on our overall winner. ENSEK is an LDC-backed provider of SaaS-based end-to-end software solutions to the UK retail energy market which, in its latest year to March 2018, grew revenues an all-organic 2.4x to 6.2m at an adjusted EBITDA profit of 2.1m. ENSEK's rapid (and profitable) growth trajectory is supported by its ability to solve issues faced by larger incumbent suppliers, where legacy technologies remain widely present, combined with offering pre-configured solutions to get new entrants up and running. Monitoring company performance The Megabuyte database is the most comprehensive research asset of its type and contains detailed proprietary data on the corporate and financial profiles of some 800 UK mid-market and scale-up technology companies alongside dedicated director, corporate activity and peer group data. The Megabuyte database is available to Megabuyte subscribers. Research Resources 12 VIEW OUR AWARD SERIES, VISIT www.megabuyte-awards.com 13 The Emerging Stars Individual Award Winners OUTSTANDING PERFORMANCE AWARDS Recognising outperformance across the Emerging Stars universe ENSEK provides retail energy providers with end-to-end solutions to operate in the UK market, from initial contact and pricing through to billing, CRM, settlements and revenue & margin management. Megabuyte view: ENSEK's rapid and profitable growth trajectory is underpinned by its SaaS-based model and its broad focus on exploiting demand from the smallest to the largest energy suppliers in the UK. At the top end, ENSEK is helping energy suppliers shift away from legacy technologies to leverage the lower cost and flexibility of a SaaS model, in addition to supporting new entrants into the UK energy market. Supplementing its expansion going forward is also a growing partner network, with collaboration with the likes of Flextricity. ENSEK OWNERSHIP: Externally Funded Best Performing Company OVERALL COMPANY SCORE SPONSORED BY Size Organic Growth Revenue CAGR EBITDA margin improvement EBITDA margin HeleCloud is an AWS partner that provides management and business transformation consulting, technology consulting/ engineering and managed services. Megabuyte view: HeleCloud's growth has been rapid with its success to date being led by its Cloud-driven approach, which has seen it develop a highly-qualified workforce (circa 220 AWS qualifications) that is led by an experienced management team. Overall, with HeleCloud's progress to date, nearshore model, increasing headcount and growth in managed services, combined with the hype of AWS, there is plenty more to come, with the company aiming for triple-digit growth in the current year. HeleCloud OWNERSHIP: Externally Funded Fastest Growing Company OVERALL COMPANY SCORE SPONSORED BY Size Organic Growth Revenue CAGR EBITDA margin improvement EBITDA margin PUBLISHED IN CONJUNCTION WITH THE Emerging Stars awards and EMERGING STARS SHOWCASE Conference The Emerging Stars awards THE WINNING COMPANIES 2019 SOFTWARE PEER GROUP AWARDS Recognising best-in-class performance within individual peer groups Safety Media provides a range of fully-integrated software and e-learning solutions, focused on health and safety challenges including incident reporting, risk management and audit. Megabuyte view: Safety Media is one of several emerging software businesses that cross both health and safety compliance and training to come under the Megabuyte microscope. In recent years the company has performed well with accelerating growth and widening profit margins, no doubt helped by its shift away from DVD sales towards e-learning software and content. The company continues to invest in its product offering and looks set to exploit various revenue streams in the coming years. Safety Media OWNERSHIP: Owner Managed Best Performing Company ACCOUNTING & ENTERPRISE SOFTWARE COMPANY SCORE SPONSORED BY Size Organic Growth Revenue CAGR EBITDA margin improvement EBITDA margin Celoxica provides low latency trading and market data solutions for high frequency traders and brokers across the globe. Megabuyte view: Following several years of flat growth, Celoxica's recent growth spurt comes on the back of securing contracts from large tier one banks as well as exploiting opportunities from MiFID II, where trading firms are required to perform more stringent real time risk checks across multiple asset classes. The group's performance is underpinned by a drive to innovate and leverage partners to develop more solutions that provide a competitive edge in high volume trading environments and access more sales channels direct to trading firms. Going forward, the main challenge will be securing further projects with large customers to maintain its growth trajectory. Celoxica OWNERSHIP: Externally Funded Best Performing Company BANKING & INSURANCE SOFTWARE COMPANY SCORE Size Organic Growth Revenue CAGR EBITDA margin improvement EBITDA margin Find out more about our awards and view all Emerging Stars 2019 winners at www.megabuyte-awards.com 14 15 PUBLISHED IN CONJUNCTION WITH THE Emerging Stars awards and EMERGING STARS SHOWCASE Conference The Emerging Stars awards THE WINNING COMPANIES 2019 The Emerging Stars Individual Award Winners PRISYM ID provides label management software solutions primarily to the medical device, clinical trials and pharmaceuticals markets. Megabuyte view: PRISYM ID is certainly a business that is unique within the Megabuyte universe with its recognition of Emerging Stars status coming after recording a notable increase in scale and profitability in fiscal 2018. Considering that software players focused on the life sciences sector under Megabuyte coverage tend to be strong performers over the long term, PRISYM ID seems well placed to continue to prosper. PRISYM ID OWNERSHIP: Owner Managed Best Performing Company GOVERNMENT & HEALTHCARE SOFTWARE COMPANY SCORE Size Organic Growth Revenue CAGR EBITDA margin improvement EBITDA margin Egress' offering comes in the form of its proprietary unstructured data security platform, which offers a range of solutions to help customers communicate, manage files and use web services securely. Megabuyte view: Strong organic growth, and a relatively recent $40m fundraising for the business highlights a step up for Egress and the next stage of the company's growth ambitions. There is a clear opportunity for Egress' user-centric data security platform in the US (and Europe), especially with macro tailwinds such as GDPR and high-profile data breaches that are helping spur conversations about how businesses handle sensitive data. The new investor, FTV Capital, also helps add validity and firepower to the US strategy. Egress Software OWNERSHIP: Externally Funded Best Performing Company SECURITY & INFRASTRUCTURE SOFTWARE COMPANY SCORE Size Organic Growth Revenue CAGR EBITDA margin improvement EBITDA margin ENSEK provides retail energy providers with end-to-end solutions to operate in the UK market, from initial contact and pricing through to billing, CRM, settlements and revenue & margin management. Megabuyte view: ENSEK's rapid and profitable growth trajectory is underpinned by its SaaS-based model and its broad focus on exploiting demand from the smallest to the largest energy suppliers in the UK. At the top end, ENSEK is helping energy suppliers shift away from legacy technologies to leverage the lower cost and flexibility of a SaaS model, in addition to supporting new entrants into the UK energy market. Supplementing its expansion going forward is also a growing partner network, with collaboration with the likes of Flextricity. ENSEK OWNERSHIP: Externally Funded Best Performing Company INDUSTRY SPECIFIC SOFTWARE COMPANY SCORE SPONSORED BY Size Organic Growth Revenue CAGR EBITDA margin improvement EBITDA margin The Emerging Stars awards THE WINNING COMPANIES 2019 ICT SERVICES PEER GROUP AWARDS Recognising best-in-class performance within individual peer groups Beeks Financial Cloud provides low latency access to futures and forex financial products on behalf of institutional investors and retail traders via a presence in eleven data centres. Megabuyte view: Beeks first year as a public company was a strong one, with EBITDA to June 2018 rising 258% to 1.95m on revenues up 41% to 5.6m, albeit that revenues were impacted by the timing of larger, complex contracts. All the signs are that 2019 will be equally strong, with consensus of 49% EBITDA growth on 43% revenue growth, with the company likely to feature again in next year's Emerging Stars, assuming it doesn't get acquired before then. Beeks Financial Cloud OWNERSHIP: Public Best Performing Company DATA CENTRE & HOSTING SERVICES COMPANY SCORE Size Organic Growth Revenue CAGR EBITDA margin improvement EBITDA margin Agilitas' USP is a highly-scalable maintenance support service focused on IT infrastructure and data centre equipment, offering a 2hr SLA, 24x7x365 white-labelled service for parts replacement, repair and redeployment. Megabuyte view: The scalability of Agilitas' model is what impresses us the most, with a focus on the parts management process and outsourcing of the actual field repair process to vendor services/field force specialists helping drive strong EBITDA growth alongside top-line improvements. It's a simple idea executed well and with good success based on strong retention rates with its main client base, so in our view, the only limiting factor is how quickly/efficiently the business can win and onboard new vendors, products-under-SLA, systems integrators and distributors. Agilitas IT Solutions OWNERSHIP: Externally Funded Best Performing Company INFRASTRUCTURE SERVICES COMPANY SCORE Size Organic Growth Revenue CAGR EBITDA margin improvement EBITDA margin 16 VIEW OUR AWARD SERIES, VISIT www.megabuyte-awards.com Find out more about our awards and view all Emerging Stars 2019 winners at www.megabuyte-awards.com The Emerging Stars awards THE WINNING COMPANIES 2019 The Emerging Stars Individual Award Winners Wifnity specialises in the provision of WiFi services in hard to reach campus-type environments, including military barracks, holiday parks, schools and retail environments. Megabuyte view: Wifinity's market niche has served it well, with revenues up 3.5x to 6.8m from 2013 to 2017, whilst EBITDA has grown faster, with margins almost doubling from 24% to 41% over the same period, and with a strong order book. Whilst the company has funded capex out of EBITDA in recent years, a 10m debt facility in early 2017 and a subsequent equity funding round suggests bigger ambitions going forward. Wifinity OWNERSHIP: Externally Funded Best Performing Company TELECOMS SERVICES COMPANY SCORE Size Organic Growth Revenue CAGR EBITDA margin improvement EBITDA margin 17 HeleCloud is an AWS partner that provides management and business transformation consulting, technology consulting/ engineering and managed services. Megabuyte view: HeleCloud's growth has been rapid with its success to date being led by its Cloud-driven approach, which has seen it develop a highly-qualified workforce (circa 220 AWS qualifications) that is led by an experienced management team. Overall, with HeleCloud's progress to date, nearshore model, increasing headcount and growth in managed services, combined with the hype of AWS, there is plenty more to come, with the company aiming for triple-digit growth in the current year. HeleCloud OWNERSHIP: Externally Funded Best Performing Company IT CONSULTING COMPANY SCORE Size Organic Growth Revenue CAGR EBITDA margin improvement EBITDA margin SPONSORED BY SPONSORED BY 18 THE STRONGEST PERFORMING PEER GROUPS The tables below show the top-performing companies in each of the Megabuyte peer groups, as well as the average scores for each peer group. For added context, it is interesting to note that there is little variance between averages for all Software (51) and ICT Services (49) companies. Leading the peer group averages is Data Centre & Hosting Services at 65, where high growth metrics are underpinned by strong demand from hyperscalers and other Cloud service providers. Leading the Software sector is Government & Healthcare Software peer group with an average score of 64. While the Industry Specific Software peer group yielded two of this year's top three Emerging Stars, its average score was 47. Interestingly, the Banking & Insurance Software peer group, which had yielded the highest peer group average in the last two Emerging Stars Awards programmes, recorded the lowest average this year at 42, although this is partly reflective of inheriting several poor performing mobile-focused fintech vendors, which were transferred after we discontinued our Mobile, Wireless & Satellite peer group. NB. Peer group averages are from the full qualifying short list of 162. Toby Roberts CEO, Safety Media Best Performing Company 2019 (AES) We are delighted to once again be recognised in this year's Megabuyte Emerging Stars Awards. The accolade highlights that our strategy to grow organically and profitably, balancing ongoing investment with top line growth, continues to be a winning formula for the business. 19 PUBLISHED IN CONJUNCTION WITH THE Emerging Stars awards and EMERGING STARS SHOWCASE Conference Strongest Performing Peer Groups Software Score Rank Safety Media Award: Best Performing Company 83 7 CIPHR 78 12 Unicorn Training Group 75 17 Interact 75 18 Wax Digital 73 21 ACCOUNTING & ENTERPRISE SOFTWARE PEER GROUP AVERAGE: 54 BANKING & INSURANCE SOFTWARE Score Rank Celoxica Award: Best Performing Company 80 8 PEER GROUP AVERAGE: 42 GOVERNMENT & HEALTHCARE SOFTWARE Score Rank PRISYM ID Award: Best Performing Company 83 6 Impero 79 11 EU Supply 74 19 PEER GROUP AVERAGE: 64 INDUSTRY SPECIFIC SOFTWARE Score Rank ENSEK Award: Overall Winner & Best Performing Company 95 1 Ticketer 84 3 PEER GROUP AVERAGE: 47 SECURITY & INFRASTRUCTURE SOFTWARE Score Rank Egress Software Award: Best Performing Company 76 14 IMS Evolve 72 25 PEER GROUP AVERAGE: 45 ICT Services IT CONSULTING Score Rank HeleCloud Award: Fastest Growing Company & Best Performing Company 83 4 Answer Digital 79 10 Chorus Global 74 20 PEER GROUP AVERAGE: 51 DATA CENTRE & HOSTING SERVICES Score Rank Beeks Financial Cloud Award: Best Performing Company 83 5 Volta Data Centres 73 23 PEER GROUP AVERAGE: 65 INFRASTRUCTURE SERVICES Score Rank Agilitas IT Solutions Award: Best Performing Company 80 9 Freestyle IT 72 24 PEER GROUP AVERAGE: 44 Score Rank Wifinity Award: Best Performing Company 87 2 Telesis 77 13 Qubic Group 76 15 Digitalk 76 16 Cloudcall Group 73 22 TELECOMS SERVICES PEER GROUP AVERAGE: 49 The Emerging Stars awards THE WINNING COMPANIES 2019 Source: Megabuyte 20 VIEW OUR AWARD SERIES, VISIT www.megabuyte-awards.com The Emerging Stars awards THE WINNING COMPANIES 2019 OWNERSHIP STRUCTURE Reviewing the ownership structure of the 25 Emerging Stars companies shows a broadly even split between owned managed and externally funded companies alongside a few publicly-listed companies. Of the 2019 Emerging Stars, 12 are owner managed, 10 have received external funding from private equity, venture capital or other investor institutions, and three are listed on the public markets. This highlights a notable rise in the number of externally funded vendors compared to last year, where owner managed businesses accounted for 80% (or 20), while it is interesting to note the high concentration of externally funded companies in the top half of the table, including four of the top five, highlighting that external investment is being used to great effect. Meanwhile, the three publicly listed companies are reflective of the scarcity of businesses that choose to IPO in this size range, accounting for only 17 out of the entire 162 eligible companies. However, this was up from last year's single, and first ever, publicly-listed Emerging Star. Reviewing the dynamics by sector emphasises the varying penetration of external investment between Software and ICT Services. Of the 13 Software Emerging Stars, more than half are externally funded (seven externally funded, five owner-managed and one public), in contrast to a much heavier presence of owner-managed businesses in the ICT Services sector (three externally funded, seven owner-managed and two public). Source: Megabuyte FIGURE 5: Emerging Stars by Ownership 2017 2019 Private Equity Owner Managed Public 1 10 13 3 4 12 20 12 FIGURE 6: ICT Sector Ownership 2017 2019 Private Equity Owner Managed Public 1 1 3 7 7 2 2 14 21 Ownership Structure TOP EXTERNALLY FUNDED COMPANIES The top four externally funded Emerging Stars mirror the overall rankings, as Emerging Stars winner ENSEK is followed by three-time Emerging Star player Wifinity and new entrants Ticketer and HeleCloud (the winner of the Fastest Growing Award). The fifth spot is taken by Celoxica, which placed 8th in the overall rankings. Source: Megabuyte Company Accounts NB: Organic growth: ENSEK (138%) and HeleCloud (293%) Revenue CAGR: HeleCloud (477%) FIGURE 7: Top 5 Externally Funded Companies TOP OWNER-MANAGED COMPANIES The top two owner managed businesses are software vendors PRISYM ID and Safety Media, both of which topped their respective peer groups, while the latter generated the highest EBITDA margin of all the Emerging Stars (at 43%). The remaining trio, Answer Digital, Telesis and Qubic Group, were all in the ICT Services sector and placed 10th, 13th and 15th respectively in the overall rankings. FIGURE 8: Top 5 Owner Managed Companies Source: Megabuyte Company Accounts Revenue (m) EBITDA (m) ENSEK 6.2 2.1 Wifinity 8.8 3.6 Ticketer 9.4 2.2 HeleCloud 3.1 0.2 Celoxica 3.6 1.1 Organic Growth EBITDA Margins Revenue CAGR 0% 15% 30% 40% 60% 75% Revenue (m) EBITDA (m) PRISYM ID 7.5 2.0 Safety Media 4.9 2.1 Answer Digital 6.3 2.0 Telesis 8.1 2.2 Qubic Group 5.9 1.2 Organic Growth EBITDA Margins Revenue CAGR 0% 15% 30% 45% 22 The Emerging Stars awards THE WINNING COMPANIES 2019 CORPORATE ACTIVITY A look back at the Emerging Stars class of 2018 In this section, we take a look back at the corporate activity of the 2018 Emerging Stars class. While the number of deals among the 25 Emerging Stars since the Awards series last year has been relatively low, with nine deals, this is largely reflective of Emerging Stars being more of a target than an acquirer, as none have completed any M&A transactions in this time. Four companies were subject to private equity or growth capital investment and five were acquired by trade buyers. NORTH AMERICAN INTEREST IN UK TECH One visible trend among the acquisition activity is the corporate interest from North American trade buyers in UK software assets, as Linguamatics, Invenias and Greycon were acquired by IQVIA, Bullhorn, and Constellation Software respectively. Interestingly, this follows a broader trend across the Megabuyte universe over the last year, with other notable examples including Adestra and Rant & Rave (both acquired by Upland Software), Lumesse (Saba Software), NewVoiceMedia (Vonage), MetaPack (Stamps.com), Intelliflo (Invesco), as well as 2017 Emerging Star Grapeshot (Oracle). The remaining two Emerging Stars to fall to trade buyers from the last year's class were in the ICT Services sector, including thevoicefactory (Evolve IP) and SICL (MXC Capital & Liberty Global JV), with the former also involving a US buyer. Meanwhile, in the time since freezing the data and publishing this report, an Emerging Star from this year's cohort has already been acquired, Telesis by Firstcom Europe. Turning to the fundraising activity, there were first time investments at Livingstone Technologies (by Carlyle Group), BCN Group (Beech Tree), SecureCloud+ (Livingbridge) and Wifinity (Literacy Capital). View all previous years' Emerging Stars winning companies at www.megabuyte-awards.com Corporate Activity TABLE 2: ES 2018 businesses... where are they now? Company Peer Group 2018 Ranking Transaction Type Current Investor Deal EV* Wifinity TS 3 GC Literacy Capital Invenias AES 8 Acquired Bullhorn 43m BCN Group IS 9 MBO Beech Tree 23m Linguamatics GHS 10 Acquired IQVIA 45m Livingstone Technologies SIS 11 MBO Carlyle Group 50m thevoicefactory TS 13 Acquired Evolve IP 10m SICL IS 15 Acquired MXC Capital & Liberty Global 13m Greycon ISS 16 Acquired Constellation Software 15m SecureCloud+ DCH 20 GC Livingbridge Source: Megabuyte Company Accounts NB: *All deal values are Megabuyte estimates SecureCloud+ received a 5m investment Emerging Stars 2018 INDIVIDUAL AWARD WINNERS invenias 23 PUBLISHED IN CONJUNCTION WITH THE Emerging Stars awards and EMERGING STARS SHOWCASE Conference Christian Bleakley CEO, Telesis Emerging Stars 2019 Top 15 Company Emerging Stars 2018 Top 5 Company Being in the top five of last year's Megabuyte Emerging Stars awards was a nice recognition of the team's efforts over the years, and I'm pleased that we have now followed many other Emerging Stars by being spotted by our recent buyer, Firstcom Europe. What now for the class of 2019? Looking ahead to next year's Emerging Stars, we expect the cohort of companies to, again, experience a high level of churn, given that companies in this size range are often subject to M&A, experience greater volatility in financial performances and, as we detail below, are on track to outgrow the Emerging Stars revenue criteria. While we would expect owner-managed businesses to continue to account for the majority of the Emerging Stars, having been the case for all three years since starting the programme, we expect the proportion of externally funded businesses to remain material due to the high levels of private equity interest in this part of the market. Prospects for MEGABUYTE50 & MEGABUYTE QUOTED25 Find out more about our awards and view all Emerging Stars 2019 winners at www.megabuyte-awards.com 24 The Emerging Stars awards THE WINNING COMPANIES 2019 Prospects for Megabuyte50 & Megabuyte Quoted25 TOP PROSPECTS We have identified ten prospects from the class of 2019 that, on their current revenue growth trajectories, look likely to exceed the Emerging Stars upper revenue limit of 10m in their next set of results, and, assuming continued/improved profitability, are strong candidates for the next edition of our private company- focused Megabuyte50 Awards. In contrast, as all of the publicly- listed Emerging Stars from this year are in the 5-7m revenues range, there are few if any prospects for the Megabuyte Quoted25 programme. However, there is every chance that one or more of this year's Emerging Stars will undertake an IPO. We'd also like to highlight the financial performance of Livingstone Technologies and BCN Group which, after appearing in the Emerging Stars class of 2018, went on to achieve placings in the Megabuyte50 Awards in November, with Livingstone securing the accolades of Highest New Entrant and Peer Group Award winner. This underpins the potential for Emerging Stars businesses to maintain their high growth trajectories and establish themselves in the UK mid-market tech industry. TABLE 3: Top prospects for Megabuyte50 Company Peer Group Ownership Revenue (m) Revenue CAGR EBITDA Margin ENSEK ISS Private Equity 6.2 72% 34% Wifinity TS Private Equity 8.8 31% 41% Ticketer ISS Private Equity 9.4 38% 23% Agilitas IT Solutions IS Private Equity 9.5 18% 21% CIPHR AES Private Equity 9.3 19% 23% Telesis TS Owner Managed 8.1 31% 27% Digitalk TS Owner Managed 8.7 15% 27% Unicorn Training Group AES Owner Managed 9.1 28% 19% Interact AES Owner Managed 9.6 21% 8% Freestyle IT IS Owner Managed 9.0 15% 4% Source: Megabuyte PUBLISHED IN CONJUNCTION WITH THE Emerging Stars awards and EMERGING STARS SHOWCASE Conference 25 The Emerging Stars awards THE WINNING COMPANIES 2019 About Megabuyte 26 The megabuyte Forum The EMERGING STARS AWARDS is a Megabuyte Forum event. With around 1000 members, the Megabuyte Forum is unique to the technology sector and offers unparalleled CXO peer networking. Forum membership is open to CXOs of UK-headquartered technology companies; you do not have to be a Megabuyte subscriber. Investor and adviser involvement with the Megabuyte Forum is restricted to Megabuyte subscribers and, for enhanced Forum access, on a sponsorship basis. www.megabuyte.com/forum About megabuyte Megabuyte is the leading source of independent data and insights on UK technology and tech-enabled businesses. We deliver expert, independent and strategically actionable insights addressing the financial and corporate affairs of some 1500 of the UK's key public and private companies in the ICT Services, Software and Business Services sectors. A combination of our proprietary content, rigorous analytics and deep domain experience make our research and opinions highly sought after by those seeking incisive and unvarnished intelligence and insights. Our research is available on-line, through subscription or pay-as-you-go, or on a retained or ad-hoc consultancy basis. www.megabuyte.com About megabuyte awards We run three awards, each focused on different categories of UK technology companies and at different stages of their development. Together, they are designed to identify the Top 100 companies in the Megabuyte coverage universe of Software and ICT Services companies. The Megabuyte award series grew out of our daily research activities, specifically scoring companies' financial performance against peers using our proprietary Megabuyte Scorecard methodology. If we know who the best-of-the-best are, why would we not share that information more widely within the industry? Our mid-market focused awards the Megabuyte50 and Megabuyte Quoted25 focus on privately-owned and publicly-listed companies respectively. Our Megabuyte Emerging Stars awards focus on smaller companies who are mid-market leaders of the future. These awards incorporate both private and public companies. www.megabuyte-awards.com 27 DISCLAIMER IS Research Ltd will not accept any liability to any third party who for any reason or by any means obtains access or otherwise relies on this report. IS Research Ltd has itself relied on information provided to it by third parties or which is publicly available in preparing this report. While IS Research Ltd has used reasonable care and skill in preparing this report, IS Research Ltd does not guarantee the completeness or accuracy of the information contained in it and the report solely reflects the opinions of IS Research Ltd. The information provided by IS Research Ltd should not be regarded as an offer to buy or sell securities and should not be regarded as an offer or solicitation to conduct investment business as defined by The Financial Services and Markets Act 2000 ("the Act") nor does it constitute a recommendation. Opinions expressed do not constitute investment advice. Any information on the past performance of an investment is not necessarily a guide to future performance. IS Research Ltd operates outside the scope of any regulated activities defined by the Act. If you require investment advice we recommend that you contact an independent adviser who is authorised by the Act to conduct such services. IS Research Ltd does not have any direct investments in any companies contained in the report and has compiled this report on an independent basis. Disclaimer INTELLIGENCE NETWORKING CONSULTANCY The Blade, Abbey Square, Reading RG1 3BE 0118 948 5850 | info@megabuyte.com www.megabuyte.com
