Acuity Software Report - 2019 RevieCybersecurity: demand for capability as use cases multiply in...

Software2019 Review

1Acuity Advisors Software Report 2020

▪ The wall of funding for Software deals: strong

public markets, private equity, debt markets and

venture chasing Software returns

▪ Capability: strategic buyers driving high growth and

transformation at speed (buy versus build)

▪ Core digital transformation: SaaS, ML, AI and data

▪ Continuing transition to the cloud: acquiring or

investing in SaaS and multi-cloud platforms

▪ ML / AI: proven capability high on strategics’

shopping lists

▪ Data analytics: Salesforce and Google making big

analytic plays with Tableau and Looker

▪ Cybersecurity: demand for capability as use cases

multiply in today’s ubiquitous world

▪ Core trends (capability and SaaS adoption) will

continue to drive demand: SaaS market penetration

is only 30% of the available enterprise market

▪ Year end banker surveys reference continuing

strong pipelines, 65% seeing an increase vs. 2018¹

▪ Market speculating that 2020 could see a mega

deal that drives a fundamental change to the

landscape e.g. Google buying Salesforce

M&A And Fundraising Market Trends: 2019

Key Takeaways

Key deal drivers: capability

to the fore

What is driving the market?

What’s next? Outlook for 2020

Who was buying in 2019?

▪ Strategic buyers inking first big deals: Fiserv, FIS,

Dassault Systèmes, Splunk, F5 Networks

▪ Tech players buying capability: Broadcom, Google

▪ Not the large traditional acquirors: not one

$1bn+deal from Microsoft, SAP, Oracle, Cisco or IBM

▪ 9 Private Equity backed $1bn+ deals (6 P2Ps)

▪ Record M&A value & volume in 2019: $248bn,

34% increase vs. 2018 including two $40bn+ deals

▪ More fuel for growth: $74bn raised in new funding,

including $28bn in late stage (2018: $74.5bn)

▪ 31 $1bn+ deals account for 74% of 2019 value

▪ Strong mid-market activity: 6,000+ transactions

The bandwagon rolls on

▪ Consistent revenue and multiple expansion in last

4 years across 4 of 5 Software subsectors

▪ M&A multiples trading at a premium to public

markets in 6 of the 10 benchmarks we have

analysed

▪ Appetite of public and private markets including late

stage funding continues to support pricing levels

Pricing: strength in depth

1 2

3 4

5 6

Matt StampPartner+44 7538 969 [email protected]

Matt leads Acuity’s Software

practice focusing on M&A and

fundraising in the mid market

(growth & private equity). 2019

deal highlights include the sale

of JHC to FNZ (wealth

management specialist), the sale

of Drum Cussac to GardaWorld

(travel risk platform), providing

strategic advice to Lanner Group

(simulation, digital twins) and

advising Vehco/AddSecure on

the acquisition of frameLOGIC

(FMS and TMS provider).

Acquired by Acquired by

Acquired by Acquired by

Acquired by

Acquired by

Source: 1. 451 Research


M&A And Fundraising Activity Since 2016

Software

Software fundraising activity: 2016-2019

Source: CapitalIQ, Acuity Intelligence

Software M&A activity: 2016-2019


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Industry Specific Software Internet Software

Systems Software Number of Transactions

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Early stage Mid stage Late stage Number of deals

▪ M&A deal volume and value

reached record levels in 2019

against a backdrop of a 20% decline

in tech M&A

▪ 2 significant Financial Services

Software deals (FIS/Worldpay

$44bn | Fiserv/First Data $42bn), the

wall of PE deals and strategics

writing big cheques drove a 34%

year-on-year increase

▪ Application Software was the only

subsector in 2019 to drop in value

and volume as acquirors executed

fewer $1bn+ deals in 2019 vs 2018

(35 in 2018 vs. 29 in 2019)

▪ Across every stage, 2019 replicated

2018 with investors providing

$73bn of new financing across the

sector (3.5% drop in value)

▪ 144 rounds in excess of $100m

raised at late stage ($28.1bn in

total), mid stage raised $33.6bn and

early stage raised $12.4bn

▪ Largest rounds raised include Infor

($1.5bn), Veeam ($500m), N26

$462m), UiPath ($568m),

Databricks ($400m) and Nu

Pagamentos ($400m)

▪ Application Software 59% of total

funding, Industry Specific 17%,

System Software 13%, Internet

Software 6% and FS Software 5%

Fundraising activity

M&A activity


Strategic Insights And Sector Themes

Software

Every company is a technology company, and every organization will increasingly need to build its own

proprietary technology solutions to compete and grow. Organizations that embrace this approach will not

only adopt best-in-class software and services but also build their own digital capability.

Life sciences companies today are following the path of companies in aerospace, automotive and high-tech,

as well as many other industries that have embraced digital transformation in the experience economy to

deliver personalized experiences, instead of just products. Managing the complexity of personalized medicine

requires a digital platform to connect the dots between people, ideas and data. The combination of Dassault

Systèmes and Medidata Solutions will enable that connection.

– Press release on Dassault Systèmes acquisition of Medidata Solutions

Our real mission is not about celebrating any of these big research breakthroughs, it’s about democratizing

AI so that every developer can build out these applications. AI and machine learning is being infused into

every experience in a deep way, and you’re going to see a lot of that. The experience itself is no longer

bound to one device, it’s becoming multi-sense and multi-device.

– Satya Nadella, CEO, Microsoft – 2019 Shareholder letter & Inspire 2019 keynote speech

The combination of Looker and Google Cloud advances our mission that we undertook from the beginning

— to empower humans through the smarter use of data. “Now, we’ll have greater reach, more resources, and

the brightest minds in both Analytics and Cloud Infrastructure working together to build an exciting path

forward for our customers and partners. Together, we are reinventing what it means to solve business

problems with data at an entirely different scale and value point.

– Frank Bien, CEO, Looker – News release on Google’s acquisition of Looker

The ability to rapidly turn all distributed data into insight using diverse visualization, analytics and AI

methods will define tomorrow's leaders. Salesforce's acquisition of Tableau gives customers the ability to

ensure that self-service and embedded decision support and augmentation is available to all executives,

managers and front line employees.

– Dan Vesset, Group VP of Analytics and Information Management Research at IDC – Press release

on Salesforce’s acquisition of Tableau

We are in the midst of a fourth industrial revolution which moves beyond mere automation of business

processes to the mass adoption of digitally-enabled technologies across every facet of our lives. Driven by the

need for greater speed and flexibility, organizations are increasingly shifting from complex on premises

solution implementations to hosted, cloud-based models accessing the technology they need to serve today’s

consumers.

– Gary Norcross, Chairman, President and CEO, FIS – 2018 Annual report


Sector Overview And Selected Listed Industry Participants

Market map

Application

Software

Companies engaged in

developing and producing

software designed for

specialised business or

consumer applications

Financial

Services

Software

Software designed for

financial services markets:

banks, financial

institutions, wealth

management and

insurance

Industry

Specific

Software

Software that has the

functionality specific to a

vertical industry or

industries

Internet

Software

Software and related

applications specific to

the internet, IoT and

cloud

Systems

Software

Companies engaged in

developing and

producing systems and

database software

including security and

cloud management

Note: Subcategories and public comparable companies analysis is based on the above publicly listed companies which Acuity has categorised


Key M&A Transactions

Application Software

Key 2019 deals

M&A since 2016

M&A in 2019

▪ Application Software deals worth $69bn were

announced in 2019, 11% lower than 2018’s record

benchmark

▪ Salesforce’s AI and visualisation driven acquisition of

Tableau accounted for a quarter of the sector’s M&A

value

▪ PEs’ strong track record in the subsector, and

continuing appetite for new investments, led to 4 P2P’s

valued at $20.4bn within the top 5 sector deals,

including the $11bn acquisition of Ultimate Software

led by Hellman & Friedman

▪ “We have continuously evolved as a business since we started 29 years ago and going

private gives us the flexibility, resources, and freedom needed to continue that

momentum as we grow the best culture, products and services in the market.” – Scott

Scherr, CEO of Ultimate – Press release on Ultimate’s acquisition by an investor

group led by Hellman & Friedman

▪ “Together, Francisco Partners and Evergreen are committed to addressing the unique

needs of both our core and growth assets. We believe our partnership with Francisco

Partners and Evergreen will help put us in a position to deliver the operational benefits

needed to achieve sustained growth over the long term.” – Bill Wagner, President and

CEO of LogMeIn – Press release on LogMeIn’s definitive agreement to be acquired

by Francisco Partners and Evergreen Coast Capital

▪ “Instructure believes the opportunity to become a private Company will provide

additional flexibility and position us to invest more strategically to drive innovation for our

customers.” – Dan Goldsmith, CEO of Instructure – Press release on Instructure’s

definitive agreement to be acquired by Thoma Bravo

▪ "This transaction will provide shareholders with immediate and substantial cash value,

while also providing us with a partner that shares in our commitment to customers and

employees and can add strategic and operational value.“ – Kevin Akeroyd, CEO of

Cision – Press release on Cision’s agreement to be acquired by Platinum Equity

Date: 10/06/2019

Value: $17.3bn

EV/Revenue: 13.7

EV/EBITDA: N/A

acquired by:

Date: 04/02/2019

Value: $10.9bn

EV/Revenue: 9.5x

EV/EBITDA: 88.8x

acquired by:

Date: 17/12/2019

Value: $4.6bn

EV/Revenue: 3.7x

EV/EBITDA: 14.3x

acquired by:

acquired by:

Date: 22/10/2019

Value: $2.8bn

EV/Revenue: 3.7x

EV/EBITDA: 12.5x

acquired by:

▪ ”Tableau is an extraordinary company, with an amazing product and team and an

incredibly passionate community. Together we can transform the way people understand

not only their customers, but their whole world - delivering powerful AI-driven insights

across all types of data and use cases for people of every skill level.” – Marc Benioff,

Chairman and co-CEO of Salesforce – Press release on Salesforce’s acquisition of

Tableau

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M&A activity Number of transactions

Date: 04/12/2019

Value: $2.1bn

EV/Revenue: 7.7x

EV/EBITDA: N/A

Evergreen Coast Capital



Enterprise value to revenue multiples

M&A And Fundraising Insights


▪ Public revenues multiple have consistently expanded

from 2016 to the end of 2019 driven by the overall

sector rating, wider Software (SaaS) valuations and

consistent strong revenue growth

▪ The trend in 2016/17 of M&A completing at

premium valuations to the equity markets flipped to

a discount in 2018, continuing into 2019

▪ The trend is driven by the higher valuation dynamics

of the larger listed players potentially coupled with

PE funded transactions not being able to stretch to

ever strengthening public valuations

Fundraising since 2016

Enterprise value to EBITDA multiples

Fundraising

▪ Public EBITDA multiples, consistent with revenue,

have continually strengthened

▪ The EV/EBITDA premium to public markets appears

to be driven by smaller, less profitable companies,

being acquired on higher EBITDA multiples (driven

by a strong synergy or capability case)

▪ Drop in July 2018 in public multiples driven by

Microsoft’s Q2 result (announced EBITDA rise not

driving share price, therefore relative EV/EBITDA

valuation dropped – given the size of Microsoft

within the index)

▪ In the same way that overall Software fundraising

levels were consistent with 2018, Application

Software fundraising followed a comparable pattern

to 2018

▪ Application Software received 63% of overall early

stage funding ($7.9bn), 60% of mid stage ($20bn)

and 56% of late stage ($15.7bn)

▪ Larger late stage deals include Veeam ($500m,

Insight & CPPIB led), Databricks ($400m raised at

$6.2bn, Andreessen Horowitz), Celonis ($290m

raised at $2.5bn, Accel) and Gitlab ($268m at

$2.7bn, Goldman Sachs and Iconiq) 0

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Public companies Mean M&A multiple

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Financial Services Software

Key 2019 deals


M&A since 2016

M&A in 2019

▪ Having seen minimal activity in 2016 & 2017, 2019 was

a standout year: $35bn across 89 deals plus $40bn+

deals for both FIS and Fiserv

▪ Both FIS and Fiserv made big plays in the payment

space in Q1, creating the two largest publicly traded

players in the subsector

▪ Private equity buying (Ellie Mae & Acuris) and selling

(Thoma Bravo selling iPipeline) illustrated the

continuing strong return from FS Software

▪ Significant strategic 2019 M&A also executed by

Envestnet, Broadbridge, FNZ and BlackRock

121 $42bn First Data / Fiserv

$44bn Worldpay / Fidelity

▪ “Our two powerhouse organizations will combine forces to offer a customer-driven

combination of scale, global presence and the industry’s broadest range of global

financial solutions. As a combined organization, we will bring the most modern solutions

targeted at the highest growth markets. The long-term value we will create for clients and

for shareholders will set the bar in our industry.” – Gary Norcross, Chairman and CEO of

FIS – Press release on FIS’s acquisition of Worldpay

▪ “As a newly combined company, we will leverage our technology expertise and integrate

our solutions to serve client needs in ways no one else can match. We are focused on

innovating to enable our clients to better serve their customers and end users so they can

succeed in a rapidly changing world.” – Frank Bisignano, President and COO of Fiserv –

Press release on Fiserv’s acquisition of First Data

▪ “The closing of this transaction represents the beginning of the next chapter in our digital

mortgage journey as we work toward our North Star of automating everything

automatable for the residential mortgage industry.” – Jonathan Corr, President and CEO

of Ellie Mae – Press release on Ellie Mae’s acquisition by Thoma Bravo

▪ “Roper provides iPipeline with a long-term foundation to further develop the life

insurance and financial services industry’s leading platform and execute on our core

purpose of helping our customers secure the financial futures of families.” – Larry

Berran, CEO of iPipeline – Press release on iPipeline’s acquisition by Roper

Technologies

▪ "Acuris’ leading position in financial intelligence, data and analytics is highly

complementary to ION's business. Together, ION and Acuris will continue to deliver

innovative, differentiated intelligence and solutions to financial institutions and

corporations. We are looking forward to partnering with BC Partners to support the

company's growth and development." – Andrea Pignataro, CEO of ION - Acuris

company statement

Date: 18/03/2019

Value: $43.6bn

EV/Revenue: 11.0x

EV/EBITDA: 28.0x

acquired by:

Date: 16/01/2019

Value: $41.7bn

EV/Revenue: 4.7x

EV/EBITDA: 12.5x

acquired by:

Date: 12/02/2019

Value: $3.6bn

EV/Revenue: 7.0x

EV/EBITDA: 59.6x

acquired by:

acquired by:

Date: 13/04/2019

Value: $1.8bn

EV/Revenue: N/A

EV/EBITDA: N/A

acquired by:

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Value: $1.6bn

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Financial Services Software

▪ Revenue multiples have increased steadily over the

last 4 years with significant multiple expansion in

2019 after a brief fallback in Q4 2018

▪ M&A multiples have traded at a discount to the

public markets: an increase in overall volume and

demand, plus the advent of the two mega deals,

have pushed revenue multiples closer to parity in

2019 (FIS & Fiserv)

▪ Demand in 2020 could drive a continuation of the

trend with further significant M&A activity forecast



Fundraising

▪ Since 2016 both volatility and growth has been

more pronounced in EBITDA multiples

▪ 2019 has shown a significant rebound and

subsequent multiple expansion in the public

markets after a fallback in 2018

▪ 2019 EBITDA M&A multiple is significantly

increased compared to prior years which is in line

with the revenue multiple increase driven by an

uptick in demand, volume and 7 $billion+ deals

▪ In addition to M&A levels, 2019 was a breakout

year for large later stage fundraising: $2.2bn across

8 significant deals demonstrating the significant

commercial traction of scale-ups

▪ Largest disclosed late stage deals: N26 ($470m,

digital bank, $3.5bn valuation, Insight led), Nu

Pagamentos ($400m, digital bank, $10bn, TCV),

Verafin ($388m, financial crime mgmt. software,

Spectrum Equity and IVP) and Carta ($300m,

private capital markets platform, $1.7bn,

Andreessen Horowitz)


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Industry Specific Software

Key 2019 deals


M&A since 2016

M&A in 2019

▪ Vertically focused Software assets have hit

consistent M&A volumes since 2016

▪ 2019 saw a further uptick in volume (42% - driven

by strong activity in mid-market) and value (12%)

▪ Bigger deals driven by capability (AI, digital twin,

digital platforms) and PE buying into enterprise

platforms driving ARR/cash flow (Advanced, Exact)

▪ Strong late stage fundraising from 2017 coupled

with market demand should further support M&A

in 2020

36$15bn Mobileye / Intel

▪ “This investment is an exciting development for Advanced. Today’s business leaders are

under constant pressure to innovate, in order to sustain a competitive advantage. Vista

and BC Partners share our vision for the future and will work to support our growth,

benefitting our customers through continued improvement of our cloud-based software

solutions and extending our offering through M&A and further innovation.” – Gordon

Wilson, CEO of Advanced – Press release on BC Partners’ investment in Advanced

▪ “Medidata’s recent expansion into real world evidence and analytics coupled with the

power of modelling and simulation demonstrates how the virtual world will catalyze the

next generation of patient-inclusive therapeutics. We are now well positioned to be the

enabler of the Life Sciences industry transformation, illustrating our company’s purpose of

harmonizing product, nature and life.” – Bernard Charlès, CEO of Dassault Systèmes –

Press release on Dassault Systèmes acquisition of Medidata Solutions

▪ “Assurance accelerates the strategy and growth potential of Prudential’s financial wellness

businesses, bringing us closer to more people across the entire socio-economic spectrum

to better serve the full picture of their needs.” – Charles Lowrey, President, Chairman

and CEO of Prudential – Press release on Prudential’s acquisition of Assurance IQ

▪ “As we enter the next stage of our journey we are delighted to have the support of KKR,

one of the world’s leading technology investors. We have a strong market position in the

Benelux region, and a rich heritage. Our plan is to continue to build on our success and in

particular become the national champion in our home markets.” – Phill Robinson CEO of

Exact Software – Press release on KKR’s acquisition of Exact Software

▪ "LSTC has been a decades-long ANSYS partner, and we have tremendous respect for the

deep ties that they have built with their customers for more than 30 years. Upon close, we

expect our shared customer-centric approach, coupled with access to our combined

portfolio of simulation solutions, will deliver enormous value to our mutual customers.” –

Ajei Gopal, President and CEO of ANSYS – Press release on ANSYS’ acquisition of

LSTC

acquired by:

Date: 12/06/2019

Value: $6.0bn

EV/Revenue: 8.8x

EV/EBITDA: 72.2x

acquired by:

Date: 05/09/2019

Value: $3.5bn

EV/Revenue: N/A

EV/EBITDA: N/A

Investment by:

Date: 26/02/2019

Value: $1.7bn

EV/Revenue: 5.0x

EV/EBITDA: 16.5x

acquired by:

Date: 11/09/2019

Value: $765m

EV/Revenue: N/A

EV/EBITDA: N/A

acquired by:

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Date: 12/08/2019

Value: $2.2bn

EV/Revenue: N/A

EV/EBITDA: 20.0x




Industry Specific Software

▪ The much slower 4 year multiple expansion in

Industry Specific (3x to 4x) vs. Application Software

(4x to 9x) illustrate subsector dynamics: Industry

Specific being more traditional in terms of growth,

profitability expectation and speed of digital

development (e.g. IBM and ADP versus Zoom &

Slack)

▪ Conversely, M&A deals have been executed at a

sizeable premium to the public markets:

― Traditional strategics or PE buying faster growing

SaaS propositions are prepared to pay a

premium aligned with wider market valuations



Fundraising

▪ EBITDA multiple expansion is consistent with the

wider sector but at lower levels given the nature of

the subsector (sustainable profit and cash flow,

more limited growth and adoption of cloud &

digital)

▪ M&A multiples executed at a growing premium to

the public markets:

― Strategics buying faster growing SaaS

propositions with higher valuations

― PE paying up to invest in profitable platforms

(significant leverage available, buy and build

opportunities in multiple verticals)

▪ Fundraising has steadily increased over the last 4

years to a record level in 2019 as funders search for

high growth disruptors in vertical markets

▪ Larger Late stage deals included Infor ($1.5bn, ERP,

pre-IPO, Golden Gate Capital, KED), Babylon

Healthcare ($550m, AI-based health services,

$2bn+valuation, Kinnevik, Vostok, ERGO, PIF), Clio

($250m, legal software, TCV, JMI), Toast ($250m,

restaurant management platform, $2.7bn, TCV and

Tiger Global) and Onit ($200m, enterprise workflow

solutions: legal sector, K1 Investment Management) 0

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Internet Software

Key 2019 deals


M&A since 2016

M&A in 2019

▪ Internet Software has seen regular levels of annual

M&A volume and value between 2016 and 2019

driven by differing strategic themes

▪ The focus in 2019 has been strategics buying up

capability – PE deals were minimal in contrast to all

other subsectors

▪ 2019’s strategic activity was driven by three

interlinked themes: AI/ML, data analytics &

monitoring and widening multi-cloud capability

12$7bn Gemalto / Thales

▪ “Google Cloud is being used by many of the leading organizations in the world for

analytics and decision-making. The combination of Google Cloud and Looker will enable

customers to harness data in new ways to drive their digital transformation. We remain

committed to our multi-cloud strategy and will retain and expand Looker’s capabilities to

analyze data across Clouds.” – Thomas Kurian, CEO of Google Cloud – Press release on

Google’s agreement to acquire Looker

▪ “VMware is committed to making the data center operate as simply and easily as it does

in the public cloud, and the addition of Avi Networks to the growing VMware networking

and security portfolio will bring us one step closer to this goal.” – Tom Gillis, Senior Vice

President and General Manager of networking and security business unit of VMware

– Press release on VMware’s acquisition of Avi Networks

▪ “The acquisition of Aerohive establishes our leadership in cloud, AI, and ML, adding a

proven and mature cloud services platform and subscription service model for Extreme’s

customers and partners. Extreme continues to invest in software and AI to expand the

automation capabilities across our portfolio of edge-to-cloud networking solutions.” – Ed

Meyercord, CEO of Extreme Networks – Press release on Extreme Networks'

acquisition of Aerohive Networks

▪ “Data fuels the modern business, and the acquisition of SignalFx squarely puts Splunk in

position as a leader in monitoring and observability at massive scale. SignalFx will support

our continued commitment to giving customers one platform that can monitor the entire

enterprise application lifecycle.” – Doug Merritt, CEO of Splunk – Press release of

Splunk’s acquisition of SignalFx

acquired by:

acquired by:

acquired by:

Date: 22/08/2019

Value: $3.3bn

EV/Revenue: 4.3x

EV/EBITDA: N/A

acquired by:

acquired by:

▪ “We are excited to combine Pivotal’s development platform, tools and services with

VMware’s infrastructure capabilities to deliver a comprehensive Kubernetes portfolio to

build, run and manage modern applications. Importantly, adding Pivotal to our platform,

accelerates our broader Any Cloud, Any App, Any Device vision and reinforces our

leadership position in modern multi-cloud IT infrastructure.” – Pat Gelsinger, CEO of

VMware – Press release of VMWare’s acquisition of Pivotal Software

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Date: 06/06/2019

Value: $2.6bn

EV/Revenue: N/A

EV/EBITDA: N/A

Date: 21/08/2019

Value: $1.0bn

EV/Revenue: N/A

EV/EBITDA: N/A

Date: 31/06/2019

Value: $335m

EV/Revenue: N/A

EV/EBITDA: N/A

Date: 09/08/2019

Value: $309m

EV/Revenue: 1.5x

EV/EBITDA: N/A




Internet Software

▪ Internet Software has seen a significant amount of

volatility and multiple reduction since 2016,

reflecting market sentiment across widely differing

business models and markets (Facebook v Alphabet

v Baidu v Twilio)

▪ Disclosed 2019 deals represent more of the

infrastructure and mid-market domain

▪ Google’s acquisition of Looker was undisclosed but

rumours suggest Google paid up at over 18x

revenues (Looker raised their Series E in 2018 at

$1.6bn)



Fundraising

▪ Public EBITDA multiples have demonstrated a

comparable trend to revenue multiples, with a

reduction since mid-2018

▪ M&A EBITDA multiples trading at a premium to the

public markets suggest strong synergy cases

through M&A in addition to a focus from buyers on

profitability versus revenue growth

▪ Strength of late stage funding (including pre-IPO

rounds) continued with $2.8bn raised in 2019,

$1.4bn at mid stage and $0.3bn at early stage,

mirroring 2018 levels

▪ Larger disclosed deals included Paytm ($1bn

raised, e-commerce payments, valuation $16bn, led

by T. Rowe Price, Ant Financials, SoftBank),

ThoughtSpot ($248m, cognitive search, $1.95bn,

Silver Lake Waterman), PharmEasy ($220m, e-

pharmacy, Temasek, $700m), Coveo ($172m,

cognitive search, $1.1bn, Omers)0

50

100

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200

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300

0

1000

2000

3000

4000

5000

6000

2016 2017 2018 2019

Deal v

olu

me

To

tal ra

ised

($m

)



0x

5x

10x

15x

20x

25x

30x

35x

40x

Jan-2016 Jan-2017 Jan-2018 Jan-2019

EV

/EB

ITD

A m

ult

iple


0x

2x

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6x

8x

10x

12x

Jan-2016 Jan-2017 Jan-2018 Jan-2019

EV

/Reven

ue m

ult

iple




Systems Software

Key 2019 deals


M&A in 2019

▪ Cybersecurity has continued to dominate Systems

Software M&A, coupled with the wider thematic

acquisition of ML and AI capability

▪ Broadcom continues to build its significant

Infrastructure Software business with the acquisition

of Symantec’s enterprise security assets (adding to

CA in 2018)

▪ Thoma Bravo’s took UK’s Sophos private in their

largest P2P in 2019

▪ F5 Networks undertook their first $1bn deal, buying

up AI and ML powered cyber specialist Shape

Security

73$36bn Red Hat / IBM

▪ "M&A has played a central role in Broadcom's growth strategy and this transaction

represents the next logical step in our strategy following our acquisitions of Brocade and

CA Technologies. Symantec's enterprise security business is recognized as an established

leader in the growing enterprise security space and has developed some of the world's

most powerful defense solutions that protect against today's evolving threat landscape

and secure data from endpoint to cloud.” – Hock Tan, CEO of Broadcom – Financial

news release on Broadcom’s acquisition of Symantec’s enterprise security business

▪ “Sophos is actively driving the transition in next-generation cybersecurity solutions,

leveraging advanced capabilities in cloud, machine learning, APIs, automation, managed

threat response, and more. We continue to execute a highly-effective and differentiated

strategy, and we see this offer as a compelling validation of Sophos, its position in the

industry and its progress.” – Kris Hagerman, CEO of Sophos – Press release on Thoma

Bravo’s offer to acquire Sophos

▪ “The Carbon Black platform, along with VMware NSX, VMware Workspace ONE, VMware

Secure State and our future innovations, will deliver a highly differentiated intrinsic

security platform across network, endpoint, workload, identity, cloud and analytics. We

believe this will bring a fundamentally new paradigm to the security industry.” – Sanjay

Poonen, COO Customer Operations of VMware – Press release on VMware’s

acquisition of Carbon Black

▪ “The combined company will continue to unlock the value of our strategic and sizable

patent portfolios by bringing together our deep industry expertise and powerful

innovation engines. Through greater scale and diversity, we will deliver attractive and

sustainable long-term cash flow and shareholder value.” – Jon Kirchner, CEO of Xperi –

Business Wire news release on Xperi and Tivo’s merger agreement

▪ “Beyond opening a fast-growing $4 billion adjacent market, Shape’s machine learning

and AI-powered capabilities will scale and extend F5’s broad portfolio of application

services and expand our ability to optimize and protect customers’ applications in an

increasingly complex multi-cloud world.” – François Locoh-Donou, CEO of F5 – Press

release on F5’s acquisition of Shape Security

Date: 08/08/2019

Value: $10.7bn

EV/Revenue: 4.6x

EV/EBITDA: 30.6x

acquired by:

Date: 14/10/2019

Value: $4.0bn

EV/Revenue: 5.4x

EV/EBITDA: 46.7x

acquired by:

Date: 22/08/2019

Value: $2.2bn

EV/Revenue: 9.0x

EV/EBITDA: N/A

acquired by:

Date: 19/12/2019

Value: $2.1bn

EV/Revenue: 2.9x

EV/EBITDA: 11.5x

acquired by:

Date: 19/12/2019

Value: $1.0bn

EV/Revenue: 11.5x

EV/EBITDA: N/A

acquired by:

Enterprise Security

assets of

0

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$b

n)





Systems Software

▪ Systems Software revenue multiples follow the

expansion trend, closing 2019 at 6x revenues

▪ The sub-sector is characterised by wide differences

in underlying participant valuations: faster growing

‘born in the cloud’ players like ServiceNow (15.5x) vs.

Oracle (5.1x) and VMware (7x), who make up half of

the sector’s market capitalisation



Fundraising

▪ System Software has seen two common EBITDA

multiple trends:

― Expansion of public market multiples over the

last 4 years almost double 2016 levels

― M&A being executed at a consistent premium

to public market valuations, in part supported in

2018 and 2019 by the majority of deals having a

cybersecurity focus (cyber being valued at a

significant premium to the wider sector)

▪ Further $9.5bn invested across Systems Software

($1.1bn early stage, $5bn mid stage, $3.3bn late

stage)

▪ Larger disclosed deals included UiPath ($568m

raised, RPA software, $7bn valuation, led by

Coatue), KnowBe4 ($300m, phishing training

software, €1bn, KKR), Automation Anywhere

($290m, RPA software, $6.8bn, Goldman Sachs,

Salesforce Ventures, SoftBank), Cybereason

($200m, cybersecurity / big data analytics, $1bn,

SoftBank) 0

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($b

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0x

1x

2x

3x

4x

5x

6x

7x

Jan-2016 Jan-2017 Jan-2018 Jan-2019

EV

/Reven

ue m

ult

iple


0x

5x

10x

15x

20x

25x

30x

Jan-2016 Jan-2017 Jan-2018 Jan-2019

EV

/EB

ITD

A m

ult

iple



Acquiror trends in 2019

Top 25 acquirors by volume (by category)


0

1

2

3

4

5

6

7

8

9

10

Nu

mb

er

of

deals

Application Software Financial Services Software Industry Specific Software Internet Software Systems Software

▪ Strategic acquirors undertaking transformational deals into or from the Software domain: Fiserv, FIS, Dassault Systèmes,

F5 Networks, Splunk

▪ Broader technology players buying key capability for their stacks: Broadcom, Google Cloud

▪ Large corporates transforming their business models: Bridgestone, Roper Technologies, Prudential

▪ Traditional large Software acquirors were absent in 2019 in $1bn+ market: Microsoft, SAP, Oracle, Cisco, IBM

▪ PE: 8 $1bn+ PE funded buy-outs valued at $32.2bn increase of 65% vs. 2018 (9 deals valued at $19.6bn) 3 deals lead by

Thoma Bravo. All 6 US deals were P2Ps, both European deals were recaps

1

2

3

0 10 20 30 40 50

Vista Equity

F5 Networks

Bridgestone

Splunk

Blackrock

HPE

YY

Roper

KKR

Alibaba

DXC

Xperi

BC Partners

Alphabet

Platinum Equity

Prudential

Francisco Partners

Vmware

Dassault

Thoma Bravo

Broadcom

Hellman & Friedman

Salesforce

Global Payments

Fiserv

Fidelity

Aggregate deal value ($bn)

# of

deals

Acquirors of Software assets: # of $1bn +

2019 deals


Share price activity

• XX

Share Price And Multiple Evolution

Valuation

Share price movement:

2016-2019

▪ Share price growth illustrates the

wider sector’s continuing success

▪ Application and Financial Services

Software lead the growth having

outperformed wider global

technology equities

EV/Revenue multiples:

2016-2019

▪ The re-rating of the wider Internet

Software sector is clearly

illustrated between January 2016

and January 2019

▪ Every other subsector has ridden

the SaaS and digital wave with

Application Software and Financial

Services multiples doubling over 4

years

EV/EBITDA multiples:

2016-2019

▪ The multiple expansion of Financial

Services Software is the standout

trend

▪ This expansion, and the relative

value of the larger players’ equity,

has been a key factor in fuelling

the M&A spending spree in 2018

and 2019

▪ The uptick in late stage fundraising

signposts further liquidity events

(IPOs and M&A)

Source: CapitalIQ

0x

2x

4x

6x

8x

10x

12x

Jan-2016 Jan-2017 Jan-2018 Jan-2019

EV

/Reven

ue m

ult

iple

Application Software Financial Services Software Industry Specific Software

Internet Software Systems Software

0x

5x

10x

15x

20x

25x

30x

35x

40x

Jan-2016 Jan-2017 Jan-2018 Jan-2019

EV

/EB

ITD

A m

ult

iple

Application Software Financial Services Software Industry Specific Software

Internet Software Systems Software

0

100

200

300

Jan-2016 Jan-2017 Jan-2018 Jan-2019

Sh

are

pri

ce i

nd

ex



Systems Software MSCI USA IMI information technology


0x

5x

10x

15x

20x

25x

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

EV

/Reven

ue m

ult

iple

Revenue growth (%)



Systems Software Linear (Application Software )

0x

5x

10x

15x

20x

25x

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

EV

/Reven

ue m

ult

iple

Revenue growth (%)

0x

5x

10x

15x

20x

25x

0% 10% 20% 30% 40% 50% 60% 70% 80%

EV

/Reven

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ult

iple

Revenue growth (%)

Regression Analysis: Revenue Growth

Valuation

Approach

▪ Our regression analysis focuses

on the key relationship

between LTM revenue growth

and valuation for the Top 25

listed participants in each

subsector

▪ Data points: EV/Revenue as at

31.12.2019 versus LTM revenue

growth

▪ We analysed a basket of both

revenue and profitability

metrics at end of 2019; revenue

growth continues to show the

strongest correlation to value

By subsector

▪ Application Software and

System Software show the

clearest correlation between

the strong EV/Revenue ratings

and underlying revenue growth


▪ Application Software shows the

strongest correlation of all

subsectors given the largest

cohort (number and relative

size) of companies ‘born in the

cloud’ and focused on pure

SaaS offerings

Source: CapitalIQ


Contact Details

PALO ALTO

530 Lytton Avenue

Palo Alto

California 94301

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33 Cavendish Square

London, W1G 0PW

United Kingdom

+44 207 123 4889

MUNICH

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80331

Munich

Germany

SHANGHAI

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3rd Building

No. 171 Meisheng Road

Shanghai

China

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