Quarterly Commentary – October 2016

IoT – A Large and Explosive Market Opportunity

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IoT–APervasiveTechnologyTrend

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Thisquarter,wetakea lookatoneofthemostbroadreachingtechnologytrends inthemarkettoday—IoTorInternetofThings.Giventhatmostany“thing”ofimportancecanbeconnected to the Internet, we expect IoT technologies to become pervasive in ourbusinessandpersonal lives.Onemeasureof the importanceof thismarketcomes fromCisco,whoesHmatesthat$14.4trillioninannualvaluewillbecreatedviathedeploymentofIoTtechnologiesbytheyear2022.IoTreferstotheinterrelatednetworkofphysicalobjectsthatfeatureuniqueidenHfiers(IPaddresses) for Internet connecHvity, and the communicaHon thatoccursbetween theseobjectsandotherInternet-enableddevicesandsystemsinordertotransferdatawithoutrequiringhumaninteracHon. Examplesof“things”thatcanexistintheIoTrealmincludetrucks/cars,shippingcontainers,homeappliances,watermeasurementsystems,vendingmachines,petcollars,andawidearrayofotherconnecteddevices.Someof the largestmarketsegmentsthatIoTtechnologieswillbeappliedinclude:transportaHon&logisHcs,connected cars, fitness/wellness, connected homes, locaHon/navigaHon, connectedbuildings,manufacturing&inventorymanagementandhealthcareservices. IoTEcosystem

Source:Eclipse.org,2015

Themarket for IoT technology soluHons itself ismade up of an interconnected ecosystem ofplayers including:manufacturersof chipsets andsensorsthatresideintheconnecteddevices;IoTGateway providers; service providers thatprovide network connecHvity, security, andlocaHon; and back end systems providers thattransform unstructured data being transmiXedintousefulbusinessandconsumersoluHons.

$14.4TrillioninValueCrea8on

Source:Cisco,2015

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IoTMarketSize

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Withamarketsopervasiveandlarge,itisnotsurprisingtoseemarketgrowthandsizeesHmatesvarywidely.MarketevangelistssuchasCiscoandEricssonexpect50billionconnecteddevices in2020.Ciscopegsconnecteddevicegrowthata23%CAGRfrom14billiondevices in2014.LeadingindustryanalystfirmssuchasGartnerandIDCexpectamoderatelysmallerbutsHllrobustmarketat32billionand28billionconnecteddevicesby2020,respecHvely,withIDCexpecHngaCAGRof17%from11billionunitsin2014.

Source:IoTAnaly<cs

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IoTMarketSize

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Fromarevenuestandpointaswell,theIoTmarketisexpectedtobelargeasIoTpermeatesourbusinessandpersonallives.IDCexpectsthemarkettoincreaseata21%CAGRfrom$2.3trillionin2014to$7.0trillionin2020.Visiongainhasthemarketincreasingata13%CAGRfrom$800billionto$1.6trillion.GiventhatIoTwillbesopervasive,webelievedifferenceslieinhowthemarketismeasured.Regardless,allmarketpunditspointtoaverylargeandgrowingopportunityinIoT.

Source:IoTAnaly<cs

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IoTMarketDrivers&Challenges

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MarketDrivers1.   Cheaper Sensors –According to a recent study by Goldman Sachs,

sensorpriceshavedropped toanaverageof$0.60 from$1.30overthepast10years.

2.   Low-power SemiconductorDesign– Power sipping chipdesigns arevery criHcal to IoTdevices in termsofhardwaredesign.AsMoore’slawcomestoanend,chipdesignersmayhavetodesignaroundthishurdle or could eventually even force the search for a replacementmaterialforsiliconsuchasGraphene.

3.   Inexpensive and Ubiquitous Wireless Coverage – We expect theadopHonof IoTtogreatlybenefitfromdecliningnetworkscostsandubiquitous wireless coverage. Over the past decade the cost ofwirelessdatahasdramaHcallydropped.TheITUexpectsthatby201957% of the global populaHonwill be connected to the Internet, upfrom40%currently.

4.   Produc8vity and Cost Savings – Businesses are embracing IoT toimproveproducHvityandefficiency,whilealsosavingoncostssuchascapexandlabor.

5.   BigData&Analy8cs – IoT is expected to generate vast amountsofunstructured data, which historically was difficult to comb throughand use efficiently. However, the evoluHon of data and analyHcsplanorms that allow companies to quickly digest, view, and takeacHononthedataisleadingtonewusecasesforIoT.

6.   IPv6 – IPv4 supports ~4.3 billion addresses, which is insufficient forthe50billionconnecteddeviceswithuniqueidenHfiers(IPaddresses)expected by 2020. IPv6 in comparison is expected to support alimitless number of IP addresses, paving theway for the billions ofdevicesexpected.

MarketChallenges1.   Industry Standards – Industry standards and communicaHon

protocols are yet to be standardized in the IoT industry. As the IoTindustry creates firmer standards, we expect to see incrementalgrowth.WithoutcooperaHon,thegrowthofIoTwillbeslowed.

2.   IoT Ecosystem –There is a great opportunity for startups to createand enable planorms and services for IoT that bridge the gapbetween the sensors collecHng data and the servers in the cloudcrunching the big data aggregated from the millions of connecteddevices.UlHmately,cooperaHonbetweensensor,devices,networks,andbackendsystemswillbekeyfortheIoTindustrytogrow.

3.   Security and Privacy – Data privacy of connected personal devicesand potenHal data misuse could become a major hindrance to IoTdevelopment. Therefore, IoT companies need to conHnue to makeinvestmentsandacquisiHons inthesecurityspacetohelpeasedatasecurity concerns and drive faster adopHon of IoT devices acrossvarioussectors.HighlighHng thiswas the recent InternetaXack thatcaused outages and network congesHon launched with the help ofhacked IoT devices such as CCTV video cameras and digital videorecorders.

4.   LackofPrivacy– IoTprovidersgatherawealthof informaHonaboutthose who use it. Smart phones can already be tracked, but smartdevices point to a future where governments supplement censusinformaHonwiththeoutputofsmartdevices,andmanufacturerscaneffecHvely and accurately harvest informaHon about your habits.UlHmately,wecanexpectIoTtoproducedozensoflegalprecedentsandclassacHonsuitsascountriesdebate justwhatrightstoprivacytheusersofsmartdevicesretainandwhichtheyforfeit.

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IoTFinancingandM&A

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IoTFinancingandM&AEmerging growth IoT companies havegarneredatremendousamountofnewinvestment over the past five years,especially those working on industrialIoT applicaHons, which saw 83%funding growth in 2015. Health &Wellness, Business Intelligence, GreenTech,Networking andHealthcarewerethe top 5 sectors by deal volume. Thelargest upHck in deal count in 2015went to “RoboHcs”, a subindustry thatincludes drones and warehouseautomaHon systems. According to CBInsights,therewere70dealswith$846million of financing in Q1 2016. The$846millionwas up YoY andQoQandrepresentedthesecondhighestquarterof IoT financing to date. M&A acHvityalso remains robust,highlightedby thelargepure-playIoTacquisiHon:Jasper

WirelessbyCiscofor$1.4billion,atavaluaHonof7.5xEV/Revenue.TherehasalsobeenmulHplelargedealsinthesemiconductormarketwithIoTbeing a central case for those deals such as SotBank’s $32 billion acquisiHon of ARM. Other recent notable deals include Nokia’s $190millionacquisiHonofWithingsinthewellnessmarket,Brocade’s$1.5billionacquisiHonofRuckusWirelessforenterprisenetworking,andVerizon’srecent$2.4billionacquisiHonofFleetmaHcsinthetelemaHcsspacethatbuildsuponitsrecentacquisiHonsofTelogisandHughesTelemaHcs.THA’sTakeonFundingandM&AAc8vityinIoTTheIoTmarketisbecomingpervasiveinourlivesandthusweexpectverysolidfundingandM&AacHvityinthesector.Giventhesizeofthemarket,weexpecttechgiantstobethemostacquisiHve,includingCisco,IBM,Verizon,Nokia,Microsot,Google,Amazonandmanyothers.WealsoexpecttoseerobustfundingtrendstoconHnue.WhileweareexcitedinspecificverHcalmarketssuchasSupplyChain&LogisHcs,ConnectedHome/Car/Building,andHealth&Wellness,wearemostexcitedbyhorizontalandvalue-addconnecHvityplanorms,highlightedbytherecentacquisiHonofJasperWirelessbyCiscoSystems.

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Merger&AcquisiHonTransacHons

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Date Announced

Acquirer Target

10/4/16 Continental AG Zonar Systems

10/4/16 BSM Technologies Mobi

10/3/16 Silicon Labs Micrium

9/28/16 SAP PLAT.ONE

9/12/16 Verizon Sensity Systems

9/7/16 Fleetmatics Inosat Consultoria Informatica

8/16/16 BullGuard Limited Dojo-Labs

8/4/16 Sierra Wireless GenX Mobile

8/1/16 Verizon Fleetmatics

7/7/16 Acuity Brands DGLogik

7/6/16 Costain Group Simulation Systems

7/5/16 Caterpillar M2M Data Corp.

6/23/16 Alarm.com Icontrol Networks Inc. (Connect and Piper BUs)

6/23/16 Comcast Icontrol Networks (Converge software BU)

6/21/16 Verizon Telogis

6/16/16 ABRY Partners MSI Holding

6/14/16 Cyan Holdings Connode

5/3/16 Microsoft Solair

4/26/16 Nokia Withings

4/21/16 Cryptosoft DeviceAuthority

Target Description EV ($M) EV/Rev

Provides fleet management systems and SaaS for the pupil transportation, commercial and vocational trucking sectors.

NA NA

Provides GPS-based fleet management and route optimization SaaS, and related SCM, logistics and analytics SaaS for businesses.

$8.0 NA

Provides embedded, IoT real-time operating systems primarily for the aerospace, industrial and medical device industries.

NA NA

Provides cloud-based and on-premise IoT and M2M provisioning software for businesses. Software enables the creation, deployment and management of IoT applications, devices and smart city infrastructure.

NA NA

Provides sensing systems that are embedded with LED lighting structures to enable the physical monitoring and security of various locations. Also provides related management SaaS.

NA NA

Provides GPS-based fleet management SaaS for the construction, insurance, oil and gas, transport, waste collection, emergency services sectors in Portugal, Spain and South America.

NA NA

Provides mobile IoT security devices and related management software to enable consumers to monitor the security of connected devices within their homes.

NA NA

Manufactures and sells in-vehicle wireless communications and tracking systems for transportation and fleet-management companies in North America and Europe.

$6.0 NA

Provides GPS-based vehicle tracking and mobile workforce management SaaS for service-based businesses and the construction industry globally.

$2,237.0 7.5x

Provides enterprise IoT application development software that enables and visualization, connectivity, management and monitoring of M2M devices, facilities, industrial and building automation systems.

NA NA

Provides real-time remote highway traffic control, monitoring and management systems. $22.6 NA

Provides sensor-based machine-to-machine (M2M) remote monitoring systems and software-as-a-service (SaaS) that enables equipment monitoring, machinery analysis and real-time remote asset management.

NA NA

Provides smart home automation, remote control and security monitoring systems. Systems are Wi-Fi-enabled for homeowners and SMBs.

$140.0 NA

Provides smart home automation control and remote monitoring software, that enables smart home touch-screen panel controls and manages security, camera and thermostat sensors.

NA NA

Provides enterprise GPS-based fleet tracking, dispatch management, driver monitoring, mobile workforce management, route mapping and mobile navigation software-as-a-service (SaaS).

$900.0 6.9x

Provides security application M2M communications systems that automate the secure network access, control and remote monitoring and management of sensors, alarms and other M2M connected devices.

NA NA

Provides smart metering and related wireless communications mesh networks for energy and other utilities providers globally.

$9.7 2.8x

Provides IoT platform-as-a-service (PaaS) to enable enterprises to develop Web-based applications for M2M connectivity, data gateway, edge computing and remote M2M monitoring and analytics.

NA NA

Provides wearable health and activity trackers, connected weighing scales, thermometers, blood pressure monitors, home security and baby monitors for consumers globally.

$190.7 NA

Provides IoT device-based identity and access management (IAM) and machine-to-machine (M2M) multi-factor authentication software for businesses, device and gateway manufacturers and IoT service platforms.

NA NA

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Merger&AcquisiHonTransacHons

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Date Announced

Acquirer Target Target Description EV ($M) EV/Rev

4/21/16 Current [General Electric]

Daintree Networks

4/11/16 Telit Communications Novatel Wireless

3/9/16 KORE Wireless Wyless

2/11/16 Weber-Stephen Products

iDevices (iGrill product line)

2/3/16 Cisco Jasper Technologies

2/1/16 CalAmp LoJack

12/23/16 PTC Kepware

12/23/15 Truphone CoSwitched (IoT Connectivity Platform)

12/18/16 Laird Novero

11/23/15 Silicon Labs Telegesis

11/16/15 Advantech B+B SmartWorx

10/26/15 Cisco ParStream

11/16/15 Flextronics Wink

11/11/15 Sigma Designs Bretelon

11/9/15 Aclara Technologies GE (Grid Solutions' electricity meters assets)

10/29/15 Delphi Automotive Control-Tec

10/8/15 Thermo King Celtrak

10/6/15 Digi International bluenica

10/6/15 ORBCOMM WAM Technologies

9/17/15 Alcatel-Lucent Mformation Software

Provides enterprise smart energy efficiency systems, including wireless thermostats that enable automatic temperature control as well as Internet of Things (IoT) enabled HVAC building control sensors.

NA NA

The cellular module product lines, related IP and related assets of Novatel Wireless, which manufactures and provides wireless M2M hardware, PCIs and embedded modules and related M2M software and SaaS.

$11.0 NA

Provides M2M connectivity and network and device management software for wireless telecommunications service providers, device manufacturers and businesses globally.

$190.0 3.2x

The iGrill product line from iDevices, which provides a connected home grilling thermometer and related iOS mobile remote monitoring and control application for consumers.

NA NA

Provides IoT service lifecycle management SaaS to enable the launch, management, and monetization of IoT services for businesses globally.

$1,400.0 11.7x

Provides on-board GPS vehicle tracking, recovery and telematic systems for consumers and businesses, enabling the recovery of stolen assets

$134.0 1.0x

Provides communication drivers connectivity software for use in industrial automation applications in the manufacturing, oil and gas, building automation, and power and utilities sectors globally.

$100.0 5.0x

Provides IoT connectivity management SaaS for telecoms, mobile virtual network operators (MVNO), IT services and M2M businesses.

NA NA

Manufactures and provides mobile in-car connectivity, vehicle communication and mobile device integration systems, as well as related car monitoring, tracking and sensing software, for car manufacturers.

NA NA

Provides wireless ZigBee modules, communications gateways and firmware that enable smart metering, smart energy, home automation and Internet-of-Things (IoT) applications, for computer and electronics manufacturers.

$20.0 NA

Designs, manufactures and supports networking and connectivity equipment and embedded software targeting mission-critical industrial applications in the M2M/IoT markets.

$99.9 NA

Offers a big-data analytics platform that includes a specialized database designed to handle large volumes of real-time queries. Positioned to analyze data produced by the Internet of Things.

NA NA

Provides a wireless smart home systems touch-screen controller and related M2M mobile application that programs, synchronizes and automates multiple third-party smart home devices.

$15.0 NA

Provides mobile Internet-of-things (IoT) application-specific integrated circuit (ASIC) systems design and engineering services, as well as mobile IoT SaaS application development services.

$22.0 NA

Manufactures and provides electricity smart metering systems and related energy grid satellite machine-to-machine (M2M) communications infrastructure for electric utilities providers.

NA NA

Provides automotive M2M-enabled data mining, big data analytics SaaS and mobile apps that aggregate data from on-board sensors to enable vehicle product development, testing, engineering and fleet management.

NA NA

Provides wireless GPS fleet tracking systems, as well as fleet routing, management and driver logging SaaS and for businesses in the shipping and transportation sector globally.

NA NA

Provides remote temperature monitoring SaaS, mobile apps and wireless sensors to track the temperature of perishable foods during shipping, in cold storage and in stores, for grocery stores, restaurants, and shippers.

NA NA

Provides refrigerated container wireless asset tracking, location management, control and temperature monitoring SaaS, software and GPS-based asset tracking hardware, for rail, shipping and trucking.

NA NA

Provides mobile device management (MDM) and M2M software to enable carriers and network operators to manage and provision mobile and IoT-connected devices.

NA NA

Mean 5.4xMedian 5.0x

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AddiHonalTechTransacHonSuccessesByTHAProfessionals

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ContactUs

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For further information, please contact any of the Telegraph Hill Managing Directors listed below: Phillip Courten

phillip@telehilladvisors.com Mobile: (917) 363-3635

Office: (415) 523-0055 Ext. 235

Scott P. Sutherland, CFA scott@telehilladvisors.com

Mobile: (310) 422-7283 Office: (415) 523-0055 Ext. 448

Dinesh Moorjani dinesh@telehilladvisors.com

Mobile: (415) 314-1141 Office: (415) 523-0055 Ext. 346