SaaS Valuations & Revenue Growth

SaaS Company Revenue Growth & Market Valuation

April 2014

About SEG

• Twenty-one year, exclusive focus on software advisory services to lower middle market (i.e., client revenue $5M - $50M) representing companies seeking:

• Strategic exit • Growth capital • Buyout • Inorganic growth via acquisition • Fairness opinions and valuations • Board advisory services

• Clients span virtually every technology, product

category, delivery model and vertical market • Global presence providing advice and guidance to

more than 2,000 private and public companies throughout US, Canada, Europe, Asia-Pacific, Africa and Israel

• Strong cross-functional team leveraging transaction, operating, legal and engineering experience

• Unparalleled software industry reputation, track record and industry research

• Highly referenceable base of past clients and buyers / investors

Focus on Advice

Multi-service

Multi- Industry

Focus on Software

Advisory Boutiques

Bulge Bracket Firms

IPO Boutiques

Copyright © 2014 by SOFTWARE EQUITY GROUP, LLC, All Rights Reserved CONFIDENTIAL

2013 SEG Successes

has received a growth equity investment from

2013 Transactions


Strong Industry Experience

has received a growth equity

investment from

Allen Cinzori, Managing Director, leads SEG’s M&A and growth capital advisory practice. Allen has advised on numerous domestic and international transactions. During his career with SEG, he has advised and led more than 50 middle market and lower-middle market transactions across the software and internet sectors. He holds an MBA degree with highest honors (Beta Gamma Sigma) from the University of Southern California's Marshall School of Business, and a Bachelor of Science in Engineering (Cum Laude) from California Polytechnic State University.


Select Transactions Led

SaaS PUBLIC COMPANY MARKET UPDATE

SEG SaaS Index: Key Public Company Performance Metrics

Measure 4Q12 1Q13 2Q13 3Q13 4Q13EV/Revenue 4.9x 5.5x 6.2x 7.3x 8.3xEV/EBITDA 38.2x 35.4x 30.2x 39.8x 57.0xEV/Earnings 40.2x 63.9x 106.1x 125.3x 81.9xGross Profit Margin 70.9% 70.8% 70.8% 70.3% 70.7%EBITDA Margin 5.9% 3.2% 1.4% 1.2% 0.2%Net Income Margin -1.6% -3.9% -4.4% -4.9% -5.0%TTM Revenue Growth 26.8% 25.3% 25.0% 27.3% 26.1%TTM Total Revenue ($M) $117.5 $127.7 $143.1 $163.8 $173.4TTM EBITDA Growth 5.9% 3.2% 1.4% 1.2% 0.2%TTM Total EBITDA ($M) $5.6 $4.0 $2.6 $1.2 $0.1Cash & Eq ($M) $67.4 $75.3 $76.2 $92.0 $107.7Current Ratio 1.6 1.9 1.5 2.3 2.6Debt / Equity Ratio 6.7% 6.5% 7.1% 10.3% 11.4%

SEG - SaaS: Median Metrics

• The SEG SaaS Index tracks public companies that primarily offer hosted, on-demand software under a subscription and/or transaction based pricing model

• The SEG SaaS Index is currently comprised of 43 public pure-play SaaS companies*

• Revenue growth is highly correlated with valuation multiples


The SEG SaaS Index: Public Company Market Multiples

7.5x

3.3x2.6x

3.6x

4.5x5.0x

7.3x

2007 2008 2009 2010 2011 2012 2013

EV/R

even

ue M

ultip

le

65.2x

36.9x31.4x 32.2x

35.2x 35.0x

48.2x

2007 2008 2009 2010 2011 2012 2013

EV/E

BITD

A M

ultip

le

Median EV/Revenue - Annual Median EV/EBITDA - Annual

• After plunging to 2.6x in 2009, the median EV/Revenue of public SaaS companies has made a stunning comeback, climbing steadily for four consecutive years to finish 2013 at a whopping 7.3x.

• Compared to this 180% increase in the SEG SaaS Index median EV/Revenue multiple, the median multiple of public on-premise software companies grew 106%. At the close of 4Q13, the median EV/Revenue multiple of public SaaS companies is more than twice that of their on-premise software counterparts.(7.3x vs. 3.1x).

• The stunning growth in median EV/Revenue of public SaaS companies reflects investors enthusiasm for 25%+ revenue growth, recurring revenue, immense market opportunities (enterprise and SMB), and an M&A feeding frenzy targeting rapidly growing SaaS providers.


The SEG SaaS Index: Public Company Market Multiples

0.0x2.5x

4.6x6.9x 7.2x 7.7x

21.2x

0.0x

5.0x

10.0x

15.0x

20.0x

25.0x

<= 0% > 0%<= 10%

> 10%<= 20%

> 20%<= 30%

> 30%<= 40%

> 40%<= 50%

> 50%

Med

ian

EV/R

even

ue

TTM Revenue Growth

11.9x

5.3x 5.7x6.5x

4.5x

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

<= 0% > 0%<= 10%

> 10%<= 20%

> 20%<= 30%

> 30%

Med

ian

EV/R

even

ue

TTM EBITDA Margin

EV/Rev Multiples vs. TTM EBITDA Margins – 4Q13 EV/Rev Multiples vs. TTM Rev Growth Rates – 4Q13

• Throughout 2013, profitable SaaS companies were penalized with lower market multiples, as investors perceived profitability to have come at the expense of growth.

• As proof, note the very strong correlation between the median TTM revenue growth rate and median EV/Revenue multiple of public SaaS companies. Public SaaS companies that grew TTM revenue below 10% received multiples significantly below their high growth peers.

• Adjusting EV/Rev multiples to account for public to private liquidity discount* would reduce valuations for 0-10% and 10%-20% growth companies to 1.9x and 3.5x, respectively

* SEG uses industry standard 33% public to private liquidity discount


SaaS M&A UPDATE

SaaS M&A: Deal Volume

2639

45 48

68 6559

94 9486

10497

103

0%

5%

10%

15%

20%

25%

30%

0

20

40

60

80

100

120

SaaS

M&

A De

als a

s a %

of T

otal

So

ftw

are

M&

A De

als

# of

Saa

S M

&A

Deal

s

SaaS M&A Deals SaaS as % of Software

50

105

200

312

390

0

50

100

150

200

250

300

350

400

450

2009 2010 2011 2012 2013

# of

Saa

S M

&A

Deal

s

SaaS M&A Deals

SaaS M&A Volume - Annual SaaS M&A Volume - Quarterly

• There were 103 SaaS M&A transactions in 4Q13, on par with 2Q13’s 104 SaaS M&A transactions. SaaS M&A transaction volumes in 2Q13, 3Q13, and 4Q13 were each greater than any prior quarter on record.

• Average quarterly SaaS M&A transaction volume in 2013 was 680% higher than in 2009.

• In 2013, there were 390 SaaS M&A transactions, a 25% increase over 2012’s 312 transactions SaaS acquisitions.



SaaS M&A: Exit Multiples

16

2.7x3.2x

3.7x 4.1x 4.1x

2009 2010 2011 2012 2013

4.1x 4.0x 4.0x 4.3x 4.1x

4Q12 1Q13 2Q13 3Q13 4Q13

• The median exit multiple for all SaaS transactions on a TTM revenue basis remained relatively constant throughout 2013, except for a bump up in 3Q13 due to a number of lower multiple transactions in 3Q12 falling out of the TTM analysis.

• The 4.1x median SaaS exit multiple for all of 2013 was 86% greater than the 2.2x median on-premise exit multiple for 2013.

• As expected, SaaS M&A exit multiples are strongly correlated with TTM revenue growth

Public Company SaaS Exits: Multiple vs. Revenue Growth

Median SaaS EV/Rev Exit Multiples - Quarterly Median SaaS EV/Rev Exit Multiples - Annual

ExactTarget, Inc.

Responsys, Inc.

Eloqua, Inc.

Rightnow Technologies

Hostopia.com Inc.

Greenway Medical

Technologies Kenexa Corp.

Taleo Corp.

Success Factors

Keynote Systems, Inc.

Pironet NDH AG

Ariba Inc.

DemandTec Omniture Inc.

Market Leader, Inc.

Convio, Inc.

Convio, Inc.

Kintera, Inc.

0.0x1.0x2.0x3.0x4.0x5.0x6.0x7.0x8.0x9.0x

10.0x

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

TTM Revenue Growth

EV/R

ev M

ultip

le*

* 33% public to private liquidity discount applied

• The 390 SaaS acquisitions in 2013 were spread across a wide number of product categories and verticals.

• CRM and Marketing once again led all product categories in acquisition activity, accounting for 15.1% of deals in 2013, slightly lower than 17% in 2012.

• SaaS mega-deals in the CRM/Marketing cateagory, including Oracle’s acquisition of Responsys, Adobe’s acquisition of Neolane, and Salesforce’s acquisition of ExactTarget, helped drive M&A activity in the product category

• CRM/Marketing buyers are seeking targets that can help garner a greater share of IT capital in spending on online marketing technology. According to Gartner, by 2017 the CMO will purchase more IT than the CIO.

• The Talent & Workforce Mgmt product category claimed only 6.4% of SaaS transactions in 2013, compared to 12% in 2012. After a three-year period of consolidation by the large HR software providers, the M&A window for many smaller HR SaaS providers is rapidly closing.

SaaS M&A: Deal Volume By Product Category

CRM, Marketing & Sales15.1%

Data Mgmt & Integration1.8%

Dev. Tools & IT Asset Mgmt1.0%

eCommerce4.1%

Engineering, PLM & CAD1.8%

ERP0.8%

HR & Workforce Mgmt6.4%

Messaging, Conferencing & Communications

6.2%Multimedia, Graphics &

Communications1.8%

Network Performance Mgmt0.5%

Security3.8%

Systems Mgmt7.7%

Supply Chain Mgmt & Logistics

4.9%

Automotive1.5%

Construction1.0%

Education4.4%

Financial Services4.6%

Healthcare2.3%

Hospitality0.8%

Insurance2.1%

Legal0.5%

Non-Profit0.8%

Other Verticals3.8%

Public Sector0.5%

Real Estate4.1%

Retail2.8%

Telcom0.3%

Accounting & Finance2.3%

Billing & Service Provisioning

1.3%

BI, Risk & Compliance6.7%

Content & Document Mgmt4.4%

Vert

ical

s


Contact Information

[email protected] www.softwareequity.com

(858) 509-2800

mailto:[email protected]

http://www.softwareequity.com/

http://www.linkedin.com/pub/allen-cinzori/2/212/697

SaaS Valuations & Revenue Growth

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