WCP Software Industry Trends H1 2013
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WCP Software Industry Trends H1 2013

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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 ...

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.

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WCP Software Industry Trends H1 2013 WCP Software Industry Trends H1 2013 Presentation Transcript

  • Software Industry Trends H1 2013 0
  • Contents I. Software Industry Trends II. M&A Overview III. VC Overview IV. Woodside Capital Partners Research Insights 1
  • 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. 2
  • 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
  • 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 $500M. (A total of 413 companies). Source: Capital IQ, H1 2013. 4
  • Software Industry Market Taxonomy Application Software  Advertising enablement Infrastructure Management Internet Content & Commerce Mobility  Business process management  Auctions  Application environment  Blogs  Mobile applications  CRM  Application integration  Community  Mobile databases  Desktop productivity applications  Systems management  Entertainment  Location-based services  Enterprise resource planning  Virtualization  Games  Mobile messaging  Human resources  Online advertising  Mobile content  Invoice/order management  Retail  Mobile devices  Price optimization  Social networking & collaboration  Mobile operating systems  Online marketing & e-commerce software  Video  Business Intelligence  Product/supply lifecycle management Source: 451 Group, 2012. 5
  • H1 2013 Software Deals(1) # 1) Closed Date Acquiror 02/14/13 Target TV ($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 $272.1 1.5x Online Resources Corporation develops and supplies its proprietary Digital Payment Framework to enable ePayment choices between consumers and financial institutions, creditors, and billers. It strengthens ACI’s online banking capabilities with complementary technology, and expands the company’s leadership in serving community banking and credit union The acquisition of Neolane brings critical cross-channel campaign management capabilities to the Adobe® Marketing Cloud (1) In terms of revenue multiple. 6
  • Software Industry: M&A Overview M&A Market Dynamics Aggregate Value ($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. 7
  • 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. 8
  • 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. 9