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<p>1| 10 SaaS and Cloud M&A Overview 2H 2017 The ongoing evolution of cloud computing and Software-as-a-Service (SaaS) means the ability for enterprises to navigate an increasingly complex environment in the coming years remains one of the largest leadership challenges. Underpinning the transition from legacy systems is the drive towards better efficiency, cost and speed. Big data and analytics has been one of the bright spots in the sector, with enterprises flocking to internet-based tools in order to avoid spending on data centres. As the amount of data stored by companies accelerates, many are updating their systems to help them understand, predict and influence customer behaviour both online and offline. As a result, in today's competitive business environment, the need to be well equipped for the shift to cloud computing, a technology which spans across all industries, has significant implications for M&A activity. Legacy vendors such as IBM, Oracle, Salesforce and SAP are locked in a perpetual rivalry with each other to acquire assets to speed up their transition, while tech giants such as Google continue to join the buyer universe in efforts to boost their enterprise credentials. And further validating investment in cloud and SaaS models private equity investors are giving strategic buyers a run for their money when it comes to paying premiums. Looking ahead, developments in artificial intelligence and cloud-hosted voice assistants such as Siri, Cortana, Google Assistant and Alexa are tipped to be one of the biggest drivers of future growth in the sector. - 100 200 300 400 500 600 1H 2011 2H 2011 1H 2012 2H 2012 1H 2013 2H 2013 1H 2014 2H 2014 1H 2015 2H 2015 1H 2016 2H 2016 1H 2017 Total number of Saas and Cloud M&A deals 2011 - 2017 Transaction Volume Introduction: New era of computing 2| 10 SaaS and Cloud M&A Overview 2H 2017 2428 Total transaction volume since 1H2015 3.8x Trailing 30 Month Median EV/S 14.5x Trailing 30-Month Median EV/EBITDA Deal flow in the Software-as-a-service (SaaS) and Cloud sector picked up slightly in the opening half of 2017 compared the last half of 2016. The information management and enterprise applications & networking sub- sectors contributed much to the uplift, with the former increasing by 36% on previous half year numbers, contributing to a total value of $7.22 billion across the entire SaaS and Cloud sector. For the most part, valuations remained steady. The trailing 30-month median revenue multiple for the period came in at 3.8x, consistent with the level we have monitored since 2015. Vista tops buyer charts Cloud services and digital media group, J2 Global, once again came out in the lead as the sector's most active acquirer in the last 30, placing it ahead of other serial legacy buyers such as Salesforce, Microsoft, Oracle and IBM. J2 Global has announced a total of 18 SaaS acquisitions for the period, followed by software, data, and technology-focused private equity firm, Vista Equity Partners, with 16 deals and software giant Microsoft with 14 deals. M&A summary Our SaaS and Cloud report covers the two and a half year period between January 2015 and June 2017. All totals and median values refer to the entire period unless otherwise stated. Median multiples plotted in the graphs refer to the 30 month period prior to and including the half year. 3.8x 4.0x 3.8x 3.8x 3.8x 14.5x 14.5x 15.1x 14.5x 14.5x - 100 200 300 400 500 600 1H 2015 2H 2015 1H 2016 2H 2016 1H 2017 Transaction Volume Trailing 30 Month Median EV/S Trailing 30 Month Median EV/EBITDA 3| 10 SaaS and Cloud M&A Overview 2H 2017 Acquirers Acquisitions in 30 months Three most recent acquisitions 18 Campaigner Email marketing SaaS Scrypt Inc. Document management & e-signature SaaS CudaMail Anti-spam & malware SaaS 16 PayLease LLC Property management payment SaaS Lithium Technologies Inc. Social media creation SaaS Xactly Corporation Sales Performance management SaaS 14 Cloudyn Cloud monitoring & management SaaS Hexadite Automated cybersecurity SaaS Deis Inc. [Engine yard] Web application deployment PaaS 13 Twin Prime Inc. Mobile app acceleration SaaS Krux Digital Audience management & targeting SaaS HeyWire Inc. Enterprise cloud-based messaging software 11 Moat Inc. Advertising analytics SaaS Wercker US Inc. Continuous integration & delivery SaaS Apiary Inc. API development software 10 TIMETOACT GROUP Team collaboration SaaS assets Fluid Inc. (XPS division) Personal shopping recommendation software EZ Legacy Enterprise application management software & SaaS 10 NYSE Governance Services Inc. Behavioural analytics-enabled compliance Tangoe Telecom expense management software Edgenet Inc. Construction product configuration SaaS 9 Spanning Cloud Apps Inc. Application backup & recovery SaaS Zyme Solutions Channel data management SaaS YourMembership.com Membership management & social SaaS 1765 Number of active acquirers during the past 30 months Number of acquirers that made >1 acquisition 361 $41m Median disclosed transaction value in past 30 months Top acquirers 4| 10 SaaS and Cloud M&A Overview 2H 2017 1. Private equities ramp up spending in the sector, paying steeper prices than strategic buyers 2. UK dominates European deal share despite ongoing concern around Brexit 3. Increasing complexity of cyber threats boosting security-related acquisitions Cloud-based data analytics continue to play a pivotal role in deal-making across the buyer spectrum 4. Collaboration tools face renewed demand in era of digital workplaces 5. Artificial intelligence tipped to be the industry's next major growth driver Top trends in SaaS and Cloud Private equity gives strategic buyers run for their money Lured by sustainable, recurring revenue streams and business versatility, the total number of private equity- backed transactions grew to 59, up 7% from the previous half year period and up an even steeper 34% from the first half of 2016, as more private equity firms rush to ride the increasingly mainstream SaaS and Cloud bandwagon. Half of the industry's top ten highest valued deals in the first half of 2017 involved a private equity bidder. The largest private equity deal and second largest deal across the sector in the last half year period was Clearlake Capital's acquisition of LANDESK, a provider of IT asset management and endpoint security software, from buyout firm Thoma Bravo for an estimated $1.15 billion. Clearlake then merged LANDESK with its portfolio company Heat Software, a provider of cloud-based service management software, and changed its name to Ivanti. Trends in SaaS and Cloud 5| 10 SaaS and Cloud M&A Overview 2H 2017 Cross-Atlantic deals One of the largest deals to come out of Europe in 1H 2017 was Vector Capital's acquisition of Irish-based Experian Information Solutions Inc. for approximately $300 million. Although the bulk of large deals were North American-based, this deal highlights the significant strength of Europe in SaaS and Cloud M&A. 40% Geographical breakdown Investors shrug off Brexit blues Economic slowdown and political uncertainty in Britain had little impact on deal flow, particularly in the small to mid-market segment. In fact, the number of UK deals grew by 37% from the same period last year ahead of the Brexit vote. In addition, the UK accounted for 40% of all deals in Europe. Germany and France were the next most targeted countries. acquires Europe 53% North America 43% RoW 4% Headquarters of acquirers of European targets Europe 21% North America 71% RoW 8% Headquarters of SaaS and Cloud targets 6| 10 SaaS and Cloud M&A Overview 2H 2017 Information Management 13% Enterprise Applications & Networking 66% Infrastructure Management 21% The largest disclosed deals of1H2017 Sub-sector breakdown Enterprise Applications & Networking Business intelligence, CRM, ERP, online marketing & e-commerce, SCM, network performance and management, enterprise VoIP, premises networks Information Management Collaboration, content management, data management, info retrieval, data protection, storage performance management Infrastructure management App lifecycle management, business process management, hosted services, integration, systems management, security $3.70 billion Cisco Systems Inc. buys AppDynamics Inc. $1.15 billion Clearlake Capital Group L.P. buys LANDESK Software $1.13 billion HGGC buys IDERA Inc. $800 million Thoma Bravo LLC buys Planview Inc. $800 million TA Associates buys MRI Software LLC $750 million First Data Corporation buys CardConnect Corp. $650 million Hewlett Packard Enterprise buys SimpliVity $614 million CA Technologies buys Veracode $610 million Cisco Systems buys Viptela Inc. acquires acquires 7| 10 SaaS and Cloud M&A Overview 2H 2017 Buyout funds propel deal count Increased levels of interest from buyout funds propelled total deal volume up for the first time since 1H 2015 by 1.5% and booking a total value of $7.22 billion. The sub-sector accounted for three out of the sector's ten largest deals, which involved private equity buyers TA Associates, Thoma Bravo and Vista Equity Partners. The sub-sector's largest two deals were TA Associates' $800 million estimated investment in MRI Software, a global provider of real estate software solutions, and Thoma Bravo's acquisition of PlanView, a portfolio management SaaS specialist, also for an estimated $800 million. Cloud-based data and analytics in high demand Legacy buyer Oracle's acquisition of New York-based Moat for an estimated $600 million is a testament to the growing interest in cloud-based data and analytics providers. The start-up, which had raised approximately $67.5 million prior to the acquisition, will operate as an independent platform within Oracle Data Cloud. Oracle has been moving aggressively into the digital advertising and marketing space over the past few years, acquiring businesses such as Vitrue, a social media marketer, in 2012 and data management platform BlueKai in 2014. Interest in cloud-based data and analytics providers was also strong among financial buyers, as demonstrated by Vista Equity Partners' $564 million acquisition of Xactly, the third largest private equity deal in the sub-sector and among the ten largest transactions throughout the wider sector in the opening half of 2017. Headquartered in San Jose, California, Xactly supplies data software that tracks employee and sales performance and helps manage incentive compensation. 298 3.5x Transaction volume 1H2017 Median EV/S 3.5x 3.5x 3.5x 3.5x 3.5x - 50 100 150 200 250 300 350 1H 2015 2H 2015 1H 2016 2H 2016 1H 2017 Transaction Volume Trailing 30 Month Median EV/S Enterprise applications & networking 8| 10 SaaS and Cloud M&A Overview 2H 2017 Collaboration investment sees marked increase Driven by ongoing developments in the digital workplace, the opening half year saw a marked increase in investment in the collaboration software space by both strategic and financial buyers. With collaboration tools once again ranking high on the agenda, the $462 million sale of collaboration giant, Jive Software, to buyout firm, ESW Capital, shows that legacy software hasn't lost its touch in the face of a slew of younger competitors like Slack. The enterprise collaboration space has become increasingly competitive in recent years with the emergence of new generation of tools such as Workplace by Facebook and Microsoft Teams. Keen to keep up with a new wave of nimble players capturing market share, software giants such as Adobe Systems, Salesforce, Cisco and IBM also offer their own collaboration tools. Strong start to 2017 Deals in the information management sub-sector were off to a stronger start compared to the previous half year, with deal volume up by 36% to 60 and total disclosed value coming in at $1.81 billion. The trailing 30-month median revenue multiple for the period came in at 3.8x, following a strong decline from the 4.4x in 2015 through 1H 2016.. The sub-sector's largest transaction was HP Enterprise's acquisition of Massachusetts-based storage start-up SimpliVity for $650 million in cash. Meanwhile, SimpliVity rival Nutanix, went public in September 2016. Both companies were racing to stake out a leading position in the fast-growing hyper- converged infrastructure market. Adoption of the red- hot market has surged in recent times as the industry makes the monumental leap from legacy-converged infrastructure. 60 3.8x Transaction volume 1H2017 Median EV/S 4.4x 4.4x 4.4x 3.8x 3.8x - 10 20 30 40 50 60 70 80 1H 2015 2H 2015 1H 2016 2H 2016 1H 2017 Transaction Volume Trailing 30 Month Median EV/S Information management 9| 10 SaaS and Cloud M&A Overview 2H 2017 Headline deals boost total deal value A flurry of landmark transactions pushed the total deal value for the opening half year up by 113% in infrastructure management compared with the previous six months. The trailing 30-month median enterprise value to sales multiple for the period came in at 5.0x, having remained stable since mid-2015. Cisco pushes for scale Cisco was the only company to announce two transactions among the top ten highest valued deals, bringing its total deal count across this sector in the last 30 months to eight. As part of a sustained effort to stay ahead of smaller cloud-based rivals like New Relic, the firm is under immense pressure to expand into higher growth and next-gen tech markets and has undertaken a big push in transformation deals from both a scale and technology standpoint. In January, the software-hungry legacy enterprise business which is transitioning from its core hardware networking business, announced a $3.7 billion acquisition of cloud application and business monitoring provider AppDynamics. A few months later, it bought Viptela, a privately held software- defined wide area network (SD-WAN) company based in San Jose, for $610 million. Complex cyber threats boost security M&A Enterprise software vendor CA Technologies' $614 million acquisition of Veracode, which runs security tests on corporate software, highlights investors' increased focus on security amid the advent of increasingly complex cyber threats. The acquisition is the latest in a long line of security deals by the software giant, including last year's acquisition of Israeli testing outfit BlazeMeter. 106 5.0x Transaction volume 1H2017 Median EV/S 4.4x 5.0x 4.9x 5.0x 5.0x - 20 40 60 80 100 120 140 1H 2015 2H 2015 1H 2016 2H 2016 1H 2017 Transaction Volume Trailing 30 Month Median EV/S Infrastructure management 10| 10 SaaS and Cloud M&A Overview 2H 2017 Conclusions & contacts Frank Berger Partner frank@hampletonpartners.com Miro Parizek Principal Partner miro@hampletonpartners.com The SaaS and Cloud sector saw an increase in transaction volume in 1H 2017 over the previous period, indicative of buyers' continued interest in adapting to modern business solutions. Two of the three sub-sectors saw increases in deals, with the more significant jump coming in Information Management at 36%, thanks in part to the strength of the enterprise collaboration space. Looking to the future, we expected cloud-hosted applications to continue to fetch higher multiples than their on-premises counterparts. The drive for cloud-based solutions is supported on both the demand side and the supply side. Increasing numbers of businesses are turning to the cloud as fears of data insecurity are allayed. At the same time, SaaS businesses are starting to find winning profitability formulas after years of development of their business models. Axel Brill Director Axel@hampletonpartners.com You can subscribe to these reports at http://www.hampletonpartners.com/research Hampleton provides independent M&A and corporate finance advice to owners of Internet, IT Services, Software and High-Tech Industrial companies. Our research reports aim to provide our clients with current analysis of the transactions, trends and valuations within our focus areas. Data Source: We have based our findings on data provided by industry recognised sources. Data and information for this publication was collated from the 451 Research database (www.451research.com), a division of The 451 Group. For more information on this or anything else related to our research, please email the address provided below. Disclaimer: This publication contains general information only and Hampleton Ltd., is not, by means of this publication, rendering professional advice or services. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser. Hampleton Ltd. shall not be responsible for any loss whatsoever sustained by any person who relies on this publication. 2017. For more information please contact Hampleton Ltd. London 17 Woodstock Street W1C 2AJ United Kingdom Frankfurt Taunusanlage 1 603629 Frankfurt Germany San Francisco 1714 Stockton Street San Francisco, CA 94133 United States Hampleton produces regular reports on M&A activity in the following sectors: FollowHampleton @Teamhampleton @HampletonPartners Fintech Healthtech Industry 4.0 Internet of Things IT Services SaaS and Cloud AR/VR Artificial Intelligence Automotive Technology Cybersecurity Digital Marketing E-Commerce Enterprise Software </p>
