India Technology Product M&A Industry Monitor Report - Presented by iSPIRT & Signal Hill

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The iSPIRT M&A monitor shows that since 2010, there have been 159 M&A transactions involving Indian Technology Product companies, with a total estimated transaction value of $1.78B. Domestic …

The iSPIRT M&A monitor shows that since 2010, there have been 159 M&A transactions involving Indian Technology Product companies, with a total estimated transaction value of $1.78B. Domestic transactions account for the lion share (70%) of the M&A activity by volume. However in value terms, the 48 inbound M&A transactions account for 63% of the estimated M&A transaction value, due to a higher average deal size ($23.3m versus $6.0m).

“In the Silicon Valley, technology M&A exits provide liquidity to all the stakeholders in the eco-system and help enable the next generation of tech startups. For the Indian product startup eco-system to flourish, it is critical to us to drive up the level of Technology Product M&A transactions”, said Sanat Rao, who leads iSPIRT’s M&A Connect Program, an initiative dedicated to facilitating and expediting the cross-border M&A process for Indian software product companies.

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  • 1. Strictly Private & Confidential India Technology Product M&A Industry Monitor Report June 2014 Strictly Private & Confidential
  • 2. Strictly Private & Confidential 2 VC/PE funding is a strong & growing source of Growth Capital for Indian Technology Product Companies 26 28 31 29 26 81 95 74 16 20 21 20 0 40 80 120 160 2010 2011 2012 2013 #Deals B2B Software Internet & Consumer / E-Commerce Mobility 77 99 143 171 112 555 603 808 60 316 55 42 0 250 500 750 1000 1250 2010 2011 2012 2013 USDMn B2B Software Internet & Consumer / E-Commerce Mobility India VC / PE Investments: Deal Value India VC / PE Investments: Deal Volume Investment in has grown by ~ between 2010- 2013 and continues to grab a lion’s share of the VC/PE investment dollars  Overall deal valuations are going up, but Series A for e-Commerce & Internet start-ups has seen a drop as VCs increasingly have been providing  Global VC/PE firms ploughing in $$ into helping them expand their footprint in Emerging & Developed markets  $$ invested in companies showing an upward trend Company Sector TotalAmount Raised Investors  Sequoia Capital  Nexus Venture Partners  Tenaya Capital  Nexus Venture Partners  SilverLake  Info Edge  Sequoia Capital  Kalaari Capital  Intel Capital  Nexus Ventures  eBay and Premji  Bessemer  Temasek  Accel Partners  Tiger Global  Morgan Stanley  Vulcan Capital  MIH Naspers  Others $550m+ $340m+ ~$53m $50m ~$39m Source: Signal Hill & iSPIRT analysis and research, Venture Intelligence E-Commerce E-Commerce Internet & Consumer Software Software  Kalaari Capital  Tiger Global  IDG Ventures  Accel Partners  PremjiInvest  Others $100m+E-Commerce
  • 3. Strictly Private & Confidential 3 The “Early-Stage” Ecosystem has developed significantly, improving the overall health of VC/PE & Indian Technology Product Company Ecosystem.. Incubators / Accelerators Seed Funding & Angel Investors Venture Capital (Series A) SalientFeatures IllustrativeExamples  Upto $100k  Invest in ideas / business plans  Access to shared office space and support services  Mentorship and guidance from experienced entrepreneurs and technologists  Provide access and support for seed funding from angels / investor groups  100k - $750k as a syndicate  Company should have a beta version of product / working prototype and well defined market potential  Mentorship and guidance from experienced entrepreneurs and technologists  Initial funding of $2 - $7m with ability to participate in follow on rounds  Market accepted service offering / product being used by 2-3 clients  Enables greater depth in product development, rapid market expansion and ability to hire talent  Development of strong sales & marketing organization to access developed markets
  • 4. Strictly Private & Confidential 4 However, overall M&A exit value of Indian Technology Product Companies is significantly below key Peers, and VC/PE’s have large Exit Backlogs… Source: Signal Hill & iSPIRT analysis and research, Venture Intelligence, PwC, NVCA US Technology Product VC/PE and M&A 2010-2013 VC / PE Investments - Volume VC / PE Investments - Value M&A - Volume M&A - Value M&A Value: VC / PE Value Average M&A Deal Size Product M&A - Challenges and Bottlenecks continue to exist……  Limited sales traction in back yard (US, Europe) of Software / Internet majors; Most start-ups don’t show up on the radar of acquirers 1  Lack of listed Software / Internet Peers in India to benchmark against and sluggish & nascent Software / Internet IPO market in India 2  Low maturity levels in product management & marketing  Companies and entrepreneurs need to focus on building a globally differentiated proposition and ensure global accounting & governance standards to ignite M&A deal flow 3 4  Nascent local acquirer universe; “US / Global Acquirer” is required to create a block buster outcome *only includes disclosed deal values. ^Slightly understated for US as the M&A value only includes disclosed deal values
  • 5. Strictly Private & Confidential 5 Clear growth in Product M&A; Domestic M&A contributes majority of deal volume, whereas Inbound M&A contributes majority of deal value.. Source: Signal Hill & iSPIRT analysis and research, Venture Intelligence, YTD as on May 2014, * - Excluding Flipkart-Myntra transaction it is $2.3m Product M&ADeals Estimated TotalProduct M&ADealValue Average M&ADealValue
  • 6. Strictly Private & Confidential 6 Cumulative Product M&A : 2010 - YTD 2014 Source: Signal Hill & iSPIRT analysis and research, Venture Intelligence, YTD as on May 2014 Product M&A Deal Volume (Cumulative) : 2010 - YTD 2014 Product M&A Deal Value (Cumulative) : 2010 - YTD 2014 31% 36% 14% 9% 9% 38% 25% 26% 6% 5%
  • 7. Strictly Private & Confidential 7 Cumulative Product M&A : Inbound vs. Domestic Inbound and Domestic Deal Volume Split by Sectors (Cumulative 2010 - YTD 2014) 54% 21% 4% 8% 13% Inbound (Total 48 Deals) 22% 43% 18% 9% 8% Domestic (Total 111 Deals) Inbound and Domestic Deal Value Split by Sectors (Cumulative 2010 -YTD 2014) 56%32% 1% 9% 2% Inbound (Total ~$1.1b) 7% 14% 69% 2% 8% Domestic (Total ~$660m) Source: Signal Hill & iSPIRT analysis and research, Venture Intelligence, YTD as on May 2014
  • 8. Strictly Private & Confidential 8 Product M&A Deal Volume: 2010 - YTD 2014 7 13 11 10 7 22 17 32 29 11 0 10 20 30 40 50 2010 2011 2012 2013 YTD 2014 #Deals Inbound Domestic Product M&A Deal Volume Trend : 2010 - YTD 2014 4 7 5 5 5 1 2 3 2 2 2 1 2 1 2 1 1 2 0 4 8 12 16 2010 2011 2012 2013 YTD 2014 #Deals 5 3 9 4 3 12 6 7 16 7 4 3 9 3 1 1 3 4 2 2 3 4 0 10 20 30 40 2010 2011 2012 2013 YTD 2014 #Deals Product M&A Inbound Deal Volume Trend : 2010 - YTD 2014 Product M&A Deal Volume Trend by Segment: 2010 - YTD 2014 Product M&A Domestic Deal Volume Trend : 2010 - YTD 2014 Source: Signal Hill & iSPIRT analysis and research, Venture Intelligence, YTD as on May 2014 9 10 14 9 8 13 8 10 18 9 4 5 9 3 1 1 4 6 3 2 3 4 6 0 10 20 30 40 50 2010 2011 2012 2013 YTD 2014 #Deals B2B Software Internet & Consumer E-Commerce Ad.Tech & Marketing Automation Mobile
  • 9. Strictly Private & Confidential 9 Product M&A Deal Value: 2010 - YTD 2014 82 605 69 233 127 38 22 136 74 391 0 100 200 300 400 500 600 700 2010 2011 2012 2013 YTD 2014 USDMn Inbound Domestic Estimated Product M&A Deal Value Trend : 2010 - YTD 2014 Estimated Product M&A Deal Value Trend by Segment: 2010 - YTD 2014 74% 49% 64% 49% 84% 21% 38% 4% 43% 16%5% 13% 32% 7% 0% 20% 40% 60% 80% 100% 2010 2011 2012 2013 YTD 2014 B2B Software Interenet & Consumer / E-Commerce Others 41% 25% 7% 7% 3% 58% 41% 51% 87% 97% 1% 34% 42% 6% 0% 20% 40% 60% 80% 100% 2010 2011 2012 2013 YTD 2014 B2B Software Internet & Consumer / E-Commerce Others Estimated Product M&A Inbound Deal Value Trend : 2010 - YTD 2014 Estimated Product M&A Domestic Deal Value Trend : 2010 - YTD 2014 Source: Signal Hill & iSPIRT analysis and research, Venture Intelligence, YTD as on May 2014 64% 48% 26% 39% 23% 27% 35% 4% 50% 6% 5% 2% 31% 3% 71% 14% 11% 1% 3% 1% 28% 6% 0% 20% 40% 60% 80% 100% 2010 2011 2012 2013 YTD 2014 B2B Software Internet & Consumer E-Commerce Ad.Tech & Marketing Automation Mobile
  • 10. Strictly Private & Confidential 10 Select Inbound Deals Date Acquirer Target Target Description Deal Value ($m) May’14 Online medical advisory service with a network of approximately 15,000 general physicians and surgeons. 18.5 Feb’14 Unified Threat Management Solutions ~70-80 Jan’14 Performance analytics software platform for mobile app developers ~11 Aug’13 Software solutions for logistics, transportation, supply chain service providers 45.1 Jun’13 Online bus ticketing platform ~100-105 Feb’13 Provides differentiated Analog, Mixed-Signal silicon IP cores and ASICs 62.0 Dec’12 Provider of analytics and business intelligence solutions to the financial services, insurance, retail and telecommunications industries NA (51% stake) Oct’12 Acquisition of Qontext, an enterprise social collaboration software, from Pramati Technologies’ portfolio of products NA Oct’11 Provider of open source storage solutions for standardizing the management of unstructured data 136.0 Oct’11 Developer and publisher of mobile and online games 80-90 Mar’11 Manufacturing, marketing and sale of structured cabling products 112.0 Jan‘11 Provides online tutoring worldwide and K12 school solutions and education services 213.0 Jan’11 Provides cloud-based, enterprise applications for live online meetings, webinars, desktop sharing and eLearning. 31.0 Source: Signal Hill & iSPIRT analysis and research, Venture Intelligence, Various Media Sources, YTD as on May 2014 NOTE: All Valuations on this slide are based on publicly available information in various media sources. Signal Hill & iSPIRT are not responsible for the accuracy of this information
  • 11. Strictly Private & Confidential Signal Hill is a leading independent advisory boutique serving the M&A and private capital raising needs of growth companies. Signal Hill’s experienced bankers provide deep domain expertise and an unyielding commitment to clients in our sectors: Internet & Digital Media, Internet Infrastructure, Services and Software. With over 600 completed transactions and offices in Baltimore, Bangalore, Boston, Nashville, New York, Reston and San Francisco, Signal Hill leverages deep strategic industry and financial sponsor relationships to help our clients achieve Greater Outcomes®. 11 iSPIRT Foundation is an industry think-tank founded by key participants and proponents of the Indian software product industry. iSPIRT enables a strong ecosystem, connects and guides software product entrepreneurs and helps catalyse business growth. It encourages buyers to improve performance by leveraging software products effectively. iSPIRT advises policy makers on interventions that can set the industry on a higher growth trajectory For questions, please contact: Sanat Rao, Partner (M&A), iSPIRT sanat@ispirt.in Klaas Oskam Managing Director, Signal Hill India koskam@signalhill.in This document has been prepared by Signal Hill Capital Advisory India Private Limited (“SHI”) & iSPIRT for discussion purposes only. The information and opinions contained in this document are derived from public and private sources which we believe to be reliable and accurate but which, without further investigation cannot be warranted as to their accuracy, completeness or correctness. This information is supplied on the condition that SHI and any partner, employee or affiliate of SHI are not liable for any error or inaccuracy contained herein, whether negligently caused or otherwise, or for loss or damage suffered by any person due to such error, omission or inaccuracy as a result of such a supply. SHI and its affiliates are also not liable for any loss or damage howsoever caused by relying on the information provided in this document. In particular any numbers, initial valuations and schedules contained in this document are preliminary and are for discussion purposes only and does not constitute an opinion.