Sectorwatch: Enterprise Software€¦ · 4 Dashboard Operating Metrics Valuation Revenue Growth...

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Sectorwatch: Enterprise Software January 2019

Transcript of Sectorwatch: Enterprise Software€¦ · 4 Dashboard Operating Metrics Valuation Revenue Growth...

Page 1: Sectorwatch: Enterprise Software€¦ · 4 Dashboard Operating Metrics Valuation Revenue Growth -0.07 1 - year revenue growth compared to revenue growth average for last 3 years Pricing

Sectorwatch:Enterprise SoftwareJanuary 2019

Page 2: Sectorwatch: Enterprise Software€¦ · 4 Dashboard Operating Metrics Valuation Revenue Growth -0.07 1 - year revenue growth compared to revenue growth average for last 3 years Pricing

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Enterprise SoftwareJanuary 2019

Sector Dashboard [4]

Public Basket Performance [5]

Operational Metrics [7]

Valuation Comparison [10]

Recent Deals [13]

Appendix [14]

7 Mile Advisors appreciates the opportunity to present this confidential information to the Company. This document is meant to bedelivered only in conjunction with a verbal presentation, and is not authorized for distribution. Please see the Confidentiality Notice &Disclaimer at the end of the document. All data cited in this document was believed to be accurate at the time of authorship and camefrom publicly available sources. Neither 7 Mile Advisors nor 7M Securities make warranties or representations as to the accuracy orcompleteness of third-party data contained herein. This document should be treated as confidential and for the use of the intendedrecipient only. Please notify 7 Mile Advisors if it was distributed in error.

Page 3: Sectorwatch: Enterprise Software€¦ · 4 Dashboard Operating Metrics Valuation Revenue Growth -0.07 1 - year revenue growth compared to revenue growth average for last 3 years Pricing

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Overview

7MA provides Investment Banking & Advisory Services to the Business Services and TechnologyIndustries globally. We advise on M&A and private capital transactions, and provide market assessmentsand benchmarking. As a close knit team with a long history together and a laser focus on our targetmarkets, we help our clients sell their companies, raise capital, grow through acquisitions, and evaluatenew markets. We publish our sectorwatch, a review of M&A and operational trends in the industries wefocus.

Dashboard• Summary metrics on the sector• Commentary on market momentum by

comparing the most recent 12-month performance against the last 3-year averages.

Public Basket Performance• Summary valuation and operating metrics

for a basket of comparable public companies

Valuation Comparison• Graphical, detailed comparison of valuation

multiples for the public basket

Recent Deals• The most recently announced deals in the

sector

Page 4: Sectorwatch: Enterprise Software€¦ · 4 Dashboard Operating Metrics Valuation Revenue Growth -0.07 1 - year revenue growth compared to revenue growth average for last 3 years Pricing

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Dashboard

Operating Metrics

Valuation

Revenue Growth

-0.07 1 - year revenue growth compared to revenue growth

average for last 3 years

Pricing / Gross Margin

-0.01% 1 - year gross profit % compared to gross profit %

average for last 3 years

Profitability Momentum

3.8% 1 - year EBITDA % compared to EBITDA % average for

last 3 years

Current revenue growth rate is less than the average of the last 3 years,

indicating that the market may be flattening or declining

Current gross profit margin is less than the average of the last 3 years gross

profit margins, indicating customer pricing power

Current EBITDA margin exceeds the average of the last 3 years EBITDA margin

by this amount, a condition that may attract new entrants

3.0%

25.9%

74.0%

0% 20% 40% 60% 80%

Median LTM Rev. Growth %

Median LTM EBITDA Margin %

Median LTM GP Margin %

6.1x

17.9x

21.2x

43.2x

0x 10x 20x 30x 40x 50x

Median TEV / LTM Revenue

Median TEV / LTM EBITDA

Median TEV / LTM EBIT

Median Price / LTM Earnings

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Public Basket

Company TEV $mLTM Rev

$m

Rev Growth

YoY GP %EBITDA

%TEV / Rev X

TEV / EBITDA

X # FTEsRev / FTE $k

Workday, Inc. 37,374 2,616 31% 70% -9% 14.3 0.0 8,200 319

VMware, Inc. 52,516 8,669 0% 86% 27% 6.1 22.3 20,615 421

salesforce.com, inc. 115,500 12,484 25% 74% 9% 9.3 98.2 29,000 430

Adobe Inc. 120,557 9,030 24% 87% 35% 13.4 38.2 - NA

SAP SE 127,522 27,983 3% 70% 26% 4.6 17.9 88,543 316

International Business Machines Corporation 154,719 79,591 1% 46% 22% 1.9 8.7 - NA

Oracle Corporation 186,103 39,893 3% 80% 40% 4.7 11.7 137,000 291

Average 113,470 25,752 12% 73% 22% 7.7 28.1 40,480 355

Median 120,557 12,484 3% 74% 26% 6.1 17.9 20,615 319

share price as of 24Jan19

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Public Basket Valuation Trends

Public EBITDA Multiples over Time

Public Revenue Multiples over Time

0x

2x

4x

6x

8x

Apr-

14

Jul-

14

Oct-

14

Jan-1

5

Apr-

15

Jul-

15

Oct-

15

Jan-1

6

Apr-

16

Jul-

16

Oct-

16

Jan-1

7

Apr-

17

Jul-

17

Oct-

17

Jan-1

8

Apr-

18

Jul-

18

Oct-

18

Jan-1

9

TEV/Revenue - Median TEV/Revenue - Average

0x

10x

20x

30x

Apr-

14

Jul-

14

Oct-

14

Jan-1

5

Apr-

15

Jul-

15

Oct-

15

Jan-1

6

Apr-

16

Jul-

16

Oct-

16

Jan-1

7

Apr-

17

Jul-

17

Oct-

17

Jan-1

8

Apr-

18

Jul-

18

Oct-

18

Jan-1

9

TEV/EBITDA - Median TEV/EBITDA - Average

16.2x

5.4x

0x

5x

10x

15x

20x

25x

Apr-

14

Jul-

14

Oct-

14

Jan-1

5

Apr-

15

Jul-

15

Oct-

15

Jan-1

6

Apr-

16

Jul-

16

Oct-

16

Jan-1

7

Apr-

17

Jul-

17

Oct-

17

Jan-1

8

Apr-

18

Jul-

18

Oct-

18

Jan-1

9

TEV/EBITDA - Median TEV/Revenue - Median

TEV/EBITDA - Average TEV/Revenue - Average

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Operational Metrics

LTM Gross Profit Margin % LTM EBITDA %

(10%) - 10% 20% 30% 40%

Median

Workday, Inc.

salesforce.com, inc.

International BusinessMachines Corporation

SAP SE

VMware, Inc.

Adobe Inc.

Oracle Corporation

- 20% 40% 60% 80% 100%

Median

International BusinessMachines Corporation

SAP SE

Workday, Inc.

salesforce.com, inc.

Oracle Corporation

VMware, Inc.

Adobe Inc.

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Operational Metrics

LTM Revenue Growth %LTM Revenue per

Full Time Employee x 000’s

- 10% 20% 30% 40%

Median

International BusinessMachines Corporation

Oracle Corporation

SAP SE

Adobe Inc.

salesforce.com, inc.

Workday, Inc.

$- $100 $200 $300 $400 $500

Median

Oracle Corporation

SAP SE

Workday, Inc.

VMware, Inc.

salesforce.com, inc.

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Operational Metrics

Accounts Receivable TurnoverAverage Days

Sales Outstanding

0x 2x 4x 6x 8x 10x 12x

Median

SAP SE

Workday, Inc.

salesforce.com, inc.

Adobe Inc.

International BusinessMachines Corporation

Oracle Corporation

0 20 40 60 80

Median

Oracle Corporation

InternationalBusiness Machines

Corporation

Adobe Inc.

salesforce.com, inc.

Workday, Inc.

SAP SE

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Valuation

TEV / LTM Revenue TEV / LTM EBITDA

0x 4x 8x 12x 16x 20x

Median

InternationalBusiness Machines

Corporation

SAP SE

Oracle Corporation

VMware, Inc.

salesforce.com, inc.

Adobe Inc.

Workday, Inc.

0x 30x 60x 90x 120x

Median

International BusinessMachines Corporation

Oracle Corporation

SAP SE

VMware, Inc.

Adobe Inc.

salesforce.com, inc.

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Valuation

TEV / LTM EBIT Price / LTM Earnings

0x 100x 200x 300x

Median

International BusinessMachines Corporation

Oracle Corporation

SAP SE

VMware, Inc.

Adobe Inc.

salesforce.com, inc.

0x 50x 100x 150x 200x

Median

International BusinessMachines Corporation

SAP SE

VMware, Inc.

Adobe Inc.

Oracle Corporation

salesforce.com, inc.

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Valuation

Historical Valuation Multiples versus Gross Profit

Historical Valuation Multiples versus Revenue Growth Rate

9x 12x 18x 22x 38x 98x

46.4%

79.6%

69.6%

85.9% 86.8%

74.0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0x

20x

40x

60x

80x

100x

120x

LTM

GP%

EBIT

DA(x

)

EBITDA(x) LTM GP%

9x 12x 18x 22x 38x 98x

0.6%

2.8% 3.0%

-

23.7%

25.2%

0%

5%

10%

15%

20%

25%

30%

0x

20x

40x

60x

80x

100x

120x

LTM

RG

R%

EBIT

DA(x

)

EBITDA(x) LTM RGR%

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Recent TransactionsDate Target Buyer / Investor

Total Transaction

Value Target

Revenue TEV /

Revenue TEV /

EBITDA

13Dec18 ServiceMax, Inc. Silver Lake - - - -

19Nov18 Frustum, Inc. PTC Inc. 70.00 - - -

20Nov18 PlanGrid, Inc. Autodesk, Inc. 875.00 - - -

30Oct18 See-out Pty Ltd Clarivate Analytics (US) LLC - - - -

28Oct18 Red Hat, Inc. International Business Machines Corporation 35,690.94 3,156.59 10.7x 54.4x

11Oct18 Tour de Force, Inc. Compass Sales Solutions - - - -

8Oct18 Rocket Software, Inc. Bain Capital Private Equity, LP - 450.00 4.4x -

20Sep18 Allure Global Solutions, Inc. Creative Realities, Inc. 13.60 9.45 1.4x NM

20Aug18 Strategic BCP, Inc. SAI Global Limited - - - -

15Aug18 IMImobile PLC - 12.22 150.71 1.4x 15.2x

13Aug18 Quorum Business Solutions, Inc. Thoma Bravo, LLC - - - -

2Aug18 Duo Security, Inc. Cisco Systems, Inc. 2,350.00 - - -

26Jul18 RedKix Facebook, Inc. - - - -

24Jul18 Arrow Digital LLC Softvision, LLC - - - -

11Jul18 Cosential Inc. JMI Management, Inc. 34.00 - - -

11Jul18 CA, Inc. Broadcom Inc. 21,776.02 4,148.00 4.4x 16.4x

26Jun18 TC Technology SSP Innovations, LLC - - - -

8Jun18 Objectiva Software Solutions, Inc. Allgeier SE - 24.00 - -

4Jun18 GitHub, Inc. Microsoft Corporation 7,500.00 - - -

4Jun18 EMS Software, LLC Accruent, LLC - - - -

18May18 Info Sys Management, Inc. SWK Technologies, Inc. 1.30 - - -

16May18 J2 Innovations, Inc. Siemens Industry Inc. - - - -

20Mar18 MuleSoft, Inc. salesforce.com, inc. 6,811.58 296.46 22.3x NM

15Feb18 WebDAM, Inc. Bynder LLC 49.10 16.20 3.0x -

15Feb18 Zenedge LLC Oracle Corporation - - - -

13Feb18 Chalkup, LLC Microsoft Corporation - - - -

2Feb18 Aljex Software Inc. MacroPoint, LLC 32.58 - - -

29Jan18 Callidus Software Inc. SAP America, Inc. 2,576.42 253.09 9.6x NM

29Jan18 PlayFab, Inc. Microsoft Corporation - - - -

16Jan18 N2W Software Inc. Veeam Software AG 42.50 - - -

11Jan18 DST Systems, Inc. SS&C Technologies Holdings, Inc. 5,751.57 2,218.20 2.6x 11.5x

1Jan18 A&B Groep B.V. Calero Software, LLC - - - -

11Jan18 Addedo AG TALENTIA SOFTWARE FRANCE SAS - 13.25 - -

11Jan18 RepPro LLC RetireUp, LLC - - - -

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APPENDIX:

Public Basket

Constituents

7 Mile Advisors appreciates the opportunity to present this confidential information to the Company. This document is meant to bedelivered only in conjunction with a verbal presentation, and is not authorized for distribution. Please see the Confidentiality Notice &Disclaimer at the end of the document. All data cited in this document was believed to be accurate at the time of authorship and camefrom publicly available sources. Neither 7 Mile Advisors nor 7M Securities make warranties or representations as to the accuracy orcompleteness of third-party data contained herein. This document should be treated as confidential and for the use of the intendedrecipient only. Please notify 7 Mile Advisors if it was distributed in error.

Enterprise SoftwareJanuary 2019

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Public Basket

Workday, Inc.

Workday, Inc. provides enterprise cloud applications for financeand human resources worldwide. It provides applications forcustomers to manage critical business functions to optimizetheir financial and human capital resources. The company offersWorkday Financial Management application that providesfunctions of general ledger, accounting, accounts payable andreceivable, cash and asset management, employee expenseand revenue management, projects, procurement, inventory,and grants management. It also provides Workday HumanCapital Management application, which includes humanresources management, such as workforce lifecycle andorganization management, compensation, absence, andemployee benefits administration; and global talentmanagement comprising goal and performance management,succession planning, and career and development planning. Inaddition, the company offers Workday Financial PerformanceManagement application; Workday Learning application;Workday Payroll application for enterprise payroll; WorkdayPlanning application to create, collaborate, and take action onfinancial and workforce plans. Workday, Inc. was founded in2005 and is headquartered in Pleasanton, California.

Date Key Development Headline7/31/18 Workday, Inc. (NasdaqGS:WDAY) completed the acquisition of

Adaptive Insights, Inc. (NYSE:ADIN) from a group of sellers.

0x

10x

20x

30x

40x

Revenue Multiples - Workday, Inc.

TEV/Revenue Average

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Public Basket

VMware, Inc.

VMware, Inc. provides compute, cloud, mobility, networking,and security infrastructure software to businesses in the UnitedStates and internationally. The company offers computeproducts, including VMware vSphere, a data center platform,which enables users to deploy hypervisor, a layer of softwarethat resides between the operating system and systemhardware to enable compute virtualization; storage andavailability products that provide data storage and protectionoptions; network and security products; and cloud managementand automation products to manage and automateoverarching IT processes involved in provisioning IT servicesand resources to users from initial infrastructure deployment toretirement. VMware, Inc. is a subsidiary of Dell TechnologiesInc.

Date Key Development Headline11/5/18 VMware, Inc. (NYSE:VMW) agreed to acquire Heptio Inc.

10/17/18 VMware To Seek Acquisitions

10/3/18 VMware, Inc. (NYSE:VMW) completed the acquisition of CloudHealth Technologies, Inc. from Kleiner Perkins Caufield & Byers, MeriTech Capital Partners, Sapphire Ventures LLC, Scale Venture Partners, .406 Ventures, LLC, Sigma Prime Ventures and others.

0x

2x

4x

6x

8x

10xRevenue Multiples - VMware, Inc.

TEV/Revenue Average

0x

10x

20x

30x

40xEBITDA Multiples - VMware, Inc.

TEV/EBITDA Average

0x

30x

60x

90x

120xP/E Multiples - VMware, Inc.

P/E Average

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Public Basket

salesforce.com, inc.

salesforce.com, inc. develops enterprise cloud computingsolutions with a focus on customer relationship management.The company offers Sales Cloud to store data, monitor leadsand progress, forecast opportunities, and gain insights throughanalytics and relationship intelligence, as well as deliver quotes,contracts, and invoices. It also provides Service Cloud, whichenables companies to deliver personalized customer serviceand support, as well as a field service solution that enablescompanies to connect agents, dispatchers, and mobileemployees through a centralized platform, which helps toschedule and dispatch work, and track and manage jobs inreal-time. The company was founded in 1999 and isheadquartered in San Francisco, California.

Date Key Development Headline10/30/18 Vonage Holdings Corp. (NYSE:VG) completed the acquisition of

NewVoiceMedia Limited from a consortium of sellers.

10/8/18 salesforce.com, inc. (NYSE:CRM) completed the acquisition of Rebel.

0x

3x

6x

9x

12x

15xRevenue Multiples - salesforce.com, inc.

TEV/Revenue Average

0x

100x

200x

300xEBITDA Multiples - salesforce.com, inc.

TEV/EBITDA Average

0x

100x

200x

300x

P/E Multiples - salesforce.com, inc.

P/E Average

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Public Basket

Adobe Inc.

Adobe Inc. operates as a diversified software companyworldwide. Its Digital Media segment provides tools andsolutions that enable individuals, small and medium businesses,and enterprises to create, publish, promote, and monetize theirdigital content. Its flagship product is Creative Cloud, asubscription service that allows customers to download andinstall the latest versions of its creative products. This segmentserves traditional content creators, Web application developers,and digital media professionals, as well as their management inmarketing departments and agencies, companies, andpublishers. The company’s Digital Marketing segment offerssolutions for how digital advertising and marketing are created,managed, executed, measured, and optimized. The companywas founded in 1982 and is headquartered in San Jose,California.

Date Key Development Headline1/22/19 Adobe Inc. (NasdaqGS:ADBE) acquired Allegorithmic SAS.

1/8/19 Adobe Inc. (NasdaqGS:ADBE) acquired unknown minority stake in Marketo KK from SunBridge Partners, Inc.

10/30/18 Adobe Inc. (NasdaqGS:ADBE) completed the acquisition of Marketo, Inc. from Vista Equity Partners LLC.

10/9/18 Adobe Accelerates Experience-Driven Commerce with Major Advancements to Magento Commerce Cloud

9/20/18 Adobe Systems Incorporated, Marketo, Inc. - M&A Call

0x

5x

10x

15x

20xRevenue Multiples - Adobe Inc.

TEV/Revenue Average

0x

20x

40x

60xEBITDA Multiples - Adobe Inc.

TEV/EBITDA Average

0x

50x

100x

150x

200xP/E Multiples - Adobe Inc.

P/E Average

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Public Basket

SAP SE

SAP SE operates as an enterprise application software, andanalytics and business intelligence company worldwide. It offersSAP HANA, which enables businesses to process and analyzelive data; SAP Data Hub, a solution that enables businesses tomanage data from various sources; SAP Cloud Platform, whichenables businesses to connect and integrate applications; SAPBW/4HANA, a data warehouse solution; SAP Leonardo, asystem that enables customers to make business sense andopportunity of disruptive technologies; and SAP AnalyticsCloud, which leverages the intersection of business intelligence,planning, and predictive analytics. SAP SE was founded in 1972and is headquartered in Walldorf, Germany.

Date Key Development Headline12/17/18 SAP and Software AG Launch Joint Platform for Smart Cities

12/17/18 Lition Signs a Co-Innovation Agreement with SAP SE

11/20/18 Tata Consultancy Services Partners with SAP to Build Intelligent Rail Digital Maintenance

11/18/18 SAP SE (DB:SAP) acquired Contextor SAS from K Partners and others.

11/16/18 SAP To Seek Acquisitions

0x

2x

4x

6x

8xRevenue Multiples - SAP SE

TEV/Revenue Average

0x

10x

20x

30xEBITDA Multiples - SAP SE

TEV/EBITDA Average

0x

10x

20x

30x

40xP/E Multiples - SAP SE

P/E Average

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Public Basket

International Business Machines Corporation

International Business Machines Corporation operates as anintegrated technology and services company worldwide. ItsCognitive Solutions segment offers Watson, a computingplatform that interacts in language, processes big data, andlearns from interactions with people and computers. Thissegment also offers data and analytics solutions, includinganalytics and data management platforms, cloud data services,enterprise social software, talent management solutions, andtailored industry solutions; and transaction processing softwarethat runs mission-critical systems in banking, airlines, and retailindustries. The company was founded in 1911 and isheadquartered in Armonk, New York.

Date Key Development Headline1/12/19 International Business Machines Corporation (NYSE:IBM) agreed

to acquire mainframe service business from T-Systems International GmbH.

1/2/19 Mr. Cooper Group Inc. (NasdaqCM:COOP) entered into a definitive agreement to acquire Seterus, Inc. from International Business Machines Corporation (NYSE:IBM).

12/20/18 IBM Expands Strategic Partnership with Samsung to Include 7nm Chip Manufacturing

12/6/18 HCL Technologies Limited (NSEI:HCLTECH) entered into a definitive agreement to acquire Software Portfolio from International Business Machines Corporation (NYSE:IBM) for $1.8 billion.

11/26/18 IBM Partners with IVADO to Combine Research and Industry Expertise in Artificial Intelligence

0x

1x

2x

3x

4x

5xRevenue Multiples - International Business

Machines Corporation

TEV/Revenue Average

0x

5x

10x

15x

20xEBITDA Multiples - International Business

Machines Corporation

TEV/EBITDA Average

0x

10x

20x

30x

40xP/E Multiples - International Business

Machines Corporation

P/E Average

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Public Basket

Oracle Corporation

Oracle Corporation develops, manufactures, markets, sells,hosts, and supports application, platform, and infrastructuresolutions for information technology (IT) environmentsworldwide. It offers human capital and talent management,enterprise resource planning, customer experience andrelationship management, procurement, supply chainmanagement, project portfolio management, business analyticsand enterprise performance management, and industry-specificapplication software, as well as financial management andgovernance, and risk and compliance applications. OracleCorporation was founded in 1977 and is headquartered inRedwood City, California.

Date Key Development Headline1/10/19 The San Francisco Giants and Oracle Announces 20-Year

Partnership

11/14/18 Oracle Corporation (NYSE:ORCL) entered into an agreement to acquire Talari Networks, Inc.

11/14/18 Tele2 Russia, Oracle Expand Cooperation on Cloud Services

11/8/18 Oracle Corporation (NYSE:ORCL) completed the acquisition of goBalto, Inc.

10/30/18 Oracle Corporation (NYSE:ORCL) completed the acquisition of DataFox Intelligence, Inc.

0x

2x

4x

6x

8xRevenue Multiples - Oracle Corporation

TEV/Revenue Average

0x

5x

10x

15x

20xEBITDA Multiples - Oracle Corporation

TEV/EBITDA Average

0x

20x

40x

60x

80xP/E Multiples - Oracle Corporation

P/E Average

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7MA provides Investment Banking & Advisory Services to the Business Services and Technology Industries globally. We advise on M&Aand private capital transactions and provide market assessments and benchmarking. As a close-knit team with a long history togetherand a laser focus on our target markets, we help our clients sell their companies, raise capital, grow through acquisitions, and evaluatenew markets. Securities offered through 7M Securities LLC.

CONTACT INFO

Leroy Davis, Partner 704.899.5962 [email protected]

Tripp Davis, Partner 704.899.5762 [email protected]

Andy Johnston, Partner 704.899.5961 [email protected]

Ben Lunka, Managing Director 704.496.2995 [email protected]

Jeff Stoecklein, Managing Director 312.796.9330 [email protected]

Mark Landry, Managing Director 561.972.0609 [email protected]

Kristina Sergueeva, Director 704.899.5149 [email protected]

Neil Churman, Director 281.742.9340 [email protected]

John Cooper, Director 704.973.3996 [email protected]

Tim Frye, Director 704.973.3994 [email protected]

Nicholas Prendergast, Financial Analyst 704.973.3995 [email protected]

Ariail Siggins, Marketing Director 704.981.2908 [email protected]

Sydney Larese, Associate 704.973.3998 [email protected]

Marty Johnson, Associate 704.973.3999 [email protected]

Rory Julyan, Associate 704.981.2520 [email protected]

Garth Martin, Associate 704.973.3997 [email protected]

Dennis Fox, Associate 704.706.9168 x 119 [email protected]

Steve Buffington, Associate 704.960.1828 [email protected]