WCP Research identifies key software industry trends including solid growth over the last five years; BYOD growing as employees and managers and employees choose their own devices; and Big Data accelerating in 2013. Salesforce.com makes a big bet on marketing cloud, while Oracle announces surprising partnerships with Salesforce.com and Microsoft.
3. H1 2013 Software Industry Highlights
Salesforce.com Makes Big Bet on Marketing Cloud
Salesforce.com acquires Exact Target for $2.5 billion or 6x revenues
— Marketing Cloud was built on the back of the Radian6 and Buddy Media acquisitions and was struggling to gain
traction in the market due to being an incomplete solution
— ET fills the gap around demand management, making Salesforce competitive with both Oracle (via its 2012 purchase
of Eloqua) and Marketo
— We believe that Salesforce will keep the company separate for now in order to minimize disruption while some
measure of technical integration is performed
— While ET has a strong presence in the SMB space, we believe that significant technical work needs to be done in order
to make the products enterprise scale
We view this deal as crucial for Salesforce as market saturation is causing its Sales Cloud growth to continue to slow
Oracle Inks Two Surprising Partnerships – One Meaningful, the other for Show
Oracle and Salesforce.com announced a nine year partnership with the following highlights
— Salesforce will standardize on Oracle data center infrastructure
— Salesforce will deploy Oracle HCM applications, displacing Workday
— Oracle will embrace Salesforce CRM
We believe that Salesforce has spent the past few years considering the move off of Oracle and onto the open source,
standard Postgres system but grew increasingly nervous about customer continuity through the transition and beyond.
Importantly this deal also addresses another key issue for Salesforce, providing a decade of cost certainty around its
infrastructure.
Oracle also announced a partnership with Microsoft making the Oracle database available in the Azure cloud. While we do
not believe that this deal has much revenue significance to either side, it is viewed by customers as an important sign that the
two companies can work together.
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4. Software Industry Trends
The global software industry experienced solid growth over the last five years despite worldwide economic turmoil.
The industry is expected to continue its momentum to reach over $450 billion by 2017, representing a 6.8% CAGR
BYOD dilemma continues to be a major growth area as 2/3 of employees and managers are choosing their own
devices
— MDM Software has been increasingly in demand along with system integrators, hosting companies and MSPs
Big Data will accelerate in 2013 – acquisitions are also forecasted within this space as big vendors like IBM, Oracle
and SAP try to expand their big data offerings with leading-edge technology from startups
Worldwide Software Revenue by Category
Worldwide Software Revenue by Geography
250
200
200
150
150
($B)
($B)
250
100
100
50
50
0
0
2011
2012
2013
2014
Application development and deployment
Applications
System infrastructure software
2015
2016
2011
2012
2013
Americas
2014
EMEA
2015
2016
APJ
Source: IDC, 2012.
3
5. Stock Performance H1 2013
Software Large Cap Index vs S&P 500
116%
Mid and Small Index vs Russell 2000
120%
118%
114%
116%
112%
114%
110%
112%
108%
110%
106%
108%
106%
104%
104%
102%
102%
100%
100%
98%
98%
S&P 500
Software Large Cap Index
Software Large Cap Index includes software companies according to CapIQ categorization with
market capitalization greater than $500M. (A total of 330 companies).
Russell 2000
Software Mid and Small Cap Index
Software Mid and Small Cap index includes software companies according to CapIQ
categorization with market capitalization between $100M to $500M. (A total of 413
companies).
Source: Capital IQ, H1 2013.
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6. Software Industry Market Taxonomy
Application Software
Advertising enablement
Infrastructure
Management
Internet Content &
Commerce
Mobility
Business process
management
Auctions
Application environment
Blogs
Mobile applications
CRM
Application integration
Community
Mobile databases
Desktop productivity
applications
Systems management
Entertainment
Location-based services
Enterprise resource planning
Virtualization
Games
Mobile messaging
Human resources
Online advertising
Mobile content
Invoice/order management
Retail
Mobile devices
Price optimization
Social networking & collaboration
Mobile operating systems
Online marketing &
e-commerce software
Video
Business Intelligence
Product/supply lifecycle
management
Source: 451 Group, 2012.
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7. H1 2013 Software Deals(1)
#
1)
Closed Date Acquiror
02/14/13
Target
TV ($M)
$155.0
Rev. Multiple Business Description
35.9x
Skyfire Labs, Inc. develops and creates a compression-as-a-service based mobile
video optimization browser/platform for wireless carriers and device makers.
Deal Rationale
“Opera and Skyfire are a natural fit”. This allows mobile operators to leverage cloud computing to
optimize virtually any video and other multimedia on crowded cell towers, including 3G and 4G LTE
networks.
2)
04/08/13
$20.2
20.0x
RunMyProcess SAS develops, commercializes, and operates a cloud-based platform The acquisition will allow Fujitsu to offer clients partial cloud solutions, instead of massive all-inthat enables organizations to design, run, and manage business processes.
one projects, which is a less dramatic than fully cloud-based solutions
3)
06/27/13
$600.0
10.3x
Neolane SA provides enterprise marketing software to manage, automate, and
optimize marketing programs.
4)
01/29/13
$485.1
8.6x
Ogone BVBA/SPRL provides online payment solutions to professional organizations, This acquisition represents a key milestone in the execution of Ingenico’s strategy of becoming the
acquirers and banks, Web agencies, shopping carts, and specific industry solutions. unique “one-stop-shop” provider covering multi-channel payment solutions: point-of-sale, online
and mobile.
5)
06/04/13
$2,350.7
7.1x
ExactTarget, Inc. provides cross-channel digital marketing software-as-a-service
(SaaS) solutions that enable organizations to communicate with their customers
through the interactive channels, including email, mobile, social media, Websites,
marketing automation, and data management.
The company will be able to expand what the Salesforce.com product can do. The company's clients
will be able to better connect with customers across a collection of channels by giving them tools
that that can be used on email, social, mobile and web-based campaigns.
6)
03/01/13
$13.5
4.0x
Altosoft corporation designs and develops business intelligence solutions.
With this acquisition, Kofax now has all of the core capabilities necessary to provide market
leading smart process applications.
This acquisition will enhance Kofax’s product portfolio with near real-time process and data
analytics, visualization and ETL capabilities
7)
01/02/13
$1,490.9
3.9x
Cerved Group SpA provides online business information solutions to banking
groups and companies in Italy.
This acquisition is in line with our strategy of improving quality of services and of innovating our
offer to always better serve our customers in this mission critical area
8)
02/26/13
$110.0
3.8x
Angel.com Incorporated offers cloud-based customer experience management (CEM) “The addition of Angel brings a new level of multi-channel, self- service solutions to existing
solutions.
Genesys customers and to the broader global market where mid-sized companies are the norm.”
9)
03/25/13
$106.2
3.4x
Nebula Oy provides ICT services in Finland. It offers cloud services, such as
"We see major potential to develop Nebula with continued growth and good profitability since they
Webhotels; DDoS protection, load balancing, distributed delivery, and geographical have a very strong market position, a scalable business model, good customer relationships,
DNS; and capacity services.
strong cash flows and services that are relatively non-cyclical."
10)
03/13/13
$6,983.7
3.1x
MakeMusic, Inc. develops and markets proprietary music technology solutions
under the Final, SmartMusic, and Garritan brands.
BMC believes the opportunity to become a private company will provide additional flexibility and
position BMC to invest more strategically to drive powerful innovation and deliver cutting edge
customer solutions
11)
04/02/13
$8.5
2.4x
LiveMocha, Inc. operates an online language learning community. It allows people
to help each other with language learning, and provides opportunities to learn and
practice new languages.
The company is making this acquisition as it sees the tide shifting away from traditional software
usage to cloud-based and mobile applications, as much among individual consumers as among its
business customer segment
12)
01/31/13
$272.1
1.5x
Online Resources Corporation develops and supplies its proprietary Digital
Payment Framework to enable ePayment choices between consumers and financial
institutions, creditors, and billers.
It strengthens ACI’s online banking capabilities with complementary technology, and expands the
company’s leadership in serving community banking and credit union
The acquisition of Neolane brings critical cross-channel campaign management capabilities to the
Adobe® Marketing Cloud
(1) In terms of revenue multiple.
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8. Software Industry: M&A Overview
M&A Market Dynamics
Aggregate Value ($B)
1,537
$69
$68
1,200
1,036
$50
812
$45
$39
727
$30
600
$25
$0
0
2009
2010
2011
5.0x
2012
H1 2012
H1 2013
H1 2013 Software M&A has considerably decreased compared
to H1 2012. Transaction volume and total aggregate M&A value
dropped by 10.5% and 23.9%, respectively
The segment with the largest increase in volume in H1 2013
compared to H1 2012 was the Consumer Software sector
4.0x
$15
Median EV/Revenue Multiple
1,350
$75
$20
1,800
Aggregate Value ($M)
1,515
$81
Number of Transactions
$100
Median EV/Revenue Multiples
3.0x
$10
2.0x
2.2x
2.1x
2.1x
2.0x
1.5x
$5
2.0x
1.0x
$0
0.0x
2009
2010
2011
2012
H1 2012
H1 2013
The median revenue multiple moved slightly from 2.1x in H1
2012 to 2.0x in H1 2013
The segment with the highest disclosed median revenue
multiple was Infrastructure Software at 3.1x
The most active acquirer between 2011 and H1 2013 was Vista
Equity Partners with 35 transactions. Their highest value deal in
H1 2013 was the acquisition of Websense for $942 million
Source: Berkery Noyes, H1 2013.
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9. Software Industry: VC Overview
US Software VC Investment Market Dynamics
H1 2013 US Overall VC Investments by
Development Stage
By Value
$10
1,500
Aggregate Value ($B)
1,266
$8.3
1,018
1,000
806
$5.1
616
$4.1
$4.1
670
$4.4
$4
500
Number of Transactions
1,176
$7.5
$8
$6
By Transactions
$2
Seed
Early Stage
Expansion
Seed
$0
Later Stage
Early Stage
Seed
Early Stage
Expansion
Expansion
Later Stage
Later Stage
0
2009
2010
2011
2012
H1 2012
H1 2013
VC investments in H1 2013 has improved compared to H1 2012
both in terms of amount invested and number of transactions by
9% and 7%, respectively
Source: NVCA, H1 2013.
Companies receiving seed VC funding and those in the Early
stage of development experienced an increase in total value
invested
“ The increase in early stage investing is an encouraging sign that
entrepreneurs with innovative ideas can get the funding they
need to succeed” – PWC
Source: NVCA, H1 2013.
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10. Woodside Capital Research Top Software Company Insights
Cloud and Enterprise Software
We came away from the RHT analyst day today with no real change in our view on the business. At a high level we believe that
the company has adopted the right longer term strategy but could have a challenging time sustaining more near term growth as
the RHEL business continues to slow and the other product lines grow to the point where their faster growth begins to impact
results. We believe that the middleware business has, in the past few quarters reached the point where its accelerating growth is
moderately helping results. However, we believe that continued modest declines in server are suppressing that benefit. While
we are optimistic about the new offerings RHT has launched – OpenStack, Open Shift, Cloud Infrastructure, we believe that it will
be at least 18-24 months until any are meaningful contributors.
We believe that the traditional networking equipment market is undergoing a tectonic shift that will play out over the next few
years. Driven by the need for more programmability and a strong push to virtualize many network functions in large enterprise
and telco, the competitive landscape is changing. Key requirements appear to be: The ability to consolidate several legacy
devices onto a single multi-service platform with each running as a separate virtual instance including application delivery
controller (ADC), firewall, DPI, and policy features. High capacity throughput and massive clustering scalability. Both CTXS and
FFIV are quickly moving to address this new integrated platform approach and are on a direct collision course. FFIV continues to
report lackluster sales growth in its ADC business and the company appears to be heading towards a single digit product growth
story based on its most recent results. The company is finally aggressively driving its roadmap to include virtual ADC and an
organically developed firewall capabilities. CTXS on the other hand is seeing incredible growth in its Netscaler ADC sales (up 54%
y/y) and is seeing major traction with its SDX platform targeting multi service delivery of ADC, 3rd party firewall, mobile traffic
optimization in telco and in large enterprise. CTXS is taking a somewhat different approach by offering best of breed third party
approaches to various network functions, for example its support for Palo Alto (PANW) NGFW. As we look at this market
evolution, we reaffirm our view that CTXS is far better positioned to capitalize on this shift than FFIV.
Acting on our belief that Master Data Management (MDM) is not well understood by the Street, we spent time with
Informatica management discussing the product set, use cases, and the competitive environment. MDM is most useful for
enterprises that have multiple CRM, ERP, Inventory management, retail POS systems, etc. Customers that have expanded
through acquisition are likely to inherit multiple instances of legacy and cloud based applications that need to tie back to a
single source of truth regarding customers, part numbers, vendors and the like for operating purposes as well as
compliance. We discussed customers like Nordstrom (JWN) that are comprised of multiple entities: Nordstrom retail,
Nordstrom Rack, and Nordstrom.com. Competitors such as Oracle Corporation (ORCL) and SAP AG (SAP) are considered to be
behind the curve, offering MDM and Data Quality as a check box after thought to their main products. IBM Corporation (IBM)
approaches the MDM problem from a services perspective, driven by project so as to optimize IGS service revenue. Tibco
(TIBX) offers MDM at no cost to their customers, thus not a priority product. Informatica offers Cloud MDM to Salesforce.com
(CRM) to the larger 4000 customers that generate over half of CRM’s revenues.
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