3Q 2013 Software Valuations

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Software, SaaS and Internet company valuation trends, operating ratios, and M&A trends

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3Q 2013 Software Valuations

  1. 1. The Software Industry Financial Report
  2. 2. SOFTWARE INDUSTRY FINANCIAL REPORT CONTENTS About Software Equity Group Leaders in Software M&A Extensive Global Reach Software Industry Macroeconomics Global GDP U.S. GDP and Unemployment Global IT Spending E-Commerce and Digital Advertising Spend SEG Indices vs. Benchmark Indices Public Software Financial and Valuation Performance The SEG Software Index The SEG Software Index: Financial Performance The SEG Software Index: Market Multiples The SEG Software Index by Product Category The SEG Software Index by Product Category: Financial Performance The SEG Software Index by Product Category: Market Multiples Public SaaS Company Financial and Valuation Performance The SEG SaaS Index The SEG SaaS Index Detail The SEG SaaS Index: Financial Performance The SEG SaaS Index: Market Multiples The SEG SaaS Index by Product Category The SEG SaaS Index by Product Category: Financial Performance The SEG SaaS Index by Product Category: Market Multiples Public Internet Company Financial and Valuation Performance The SEG Internet Index The SEG Internet Index: Financial Performance The SEG Internet Index: Market Multiples The SEG Internet Index by Product Category The SEG Internet Index by Product Category: Financial Performance The SEG Internet Index by Product Category: Market Multiples 1 4 5 8 9 10 11 12 14 15-17 18-19 20 21 22 24 25 26 28 26-28 29-30 31 32 33 35 36-38 39-40 41 42 43 Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved
  3. 3. SOFTWARE INDUSTRY FINANCIAL REPORT CONTENTS Software Industry M&A Market Update Software/SaaS M&A Deal Volume and Spending Software M&A Exit Multiples Software M&A by Ownership Structure and Size Software M&A by Vertical and Horizontal Markets Software M&A by Product Category SaaS M&A Deal Volume and Exit Multiples SaaS M&A by Product Category SaaS M&A: 3Q13 Transactions Internet M&A: Deal Volume and Exit Multiples Appendix The SEG Software Index Companies The SEG SaaS Index Companies The SEG Internet Index Companies The SEG Software Index by Key Metrics The SEG SaaS Index by Key Metrics The SEG Internet Index by Key Metrics The SEG Software Index Metrics by Product Category The SEG SaaS Index Metrics by Product Category The SEG Internet Index Metrics by Product Category 3Q13 Public Sellers 3Q13 Software Mega Deals (>$500M) 3Q13 Most Active Buyers 2 45 46 47 48 49-50 51 52 53-55 56 57 56-57 58-61 62 63-65 66 69 66-69 70 71-73 74-75 76 77 78 79 80 Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved
  4. 4. ABOUT SOFTWARE EQUITY GROUP 3 Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved
  5. 5. LEADERS IN SOFTWARE M&A • Industry leading boutique investment bank founded in bank, 1992, representing public and private software and internet companies seeking: • Strategic exit • Growth capital • Buyout • Inorganic growth via acquisition • Buy and sell-side mentoring • Fairness opinions and valuations • Sell-side client revenue range: $5 - 75 million • Buy-side clients include private equity firms and NASDAQ, NYSE and foreign exchange listed companies • Clients span virtually every software technology, product category, delivery model and vertical market • Global presence providing advice and guidance to more than 2 000 i t th 2,000 private and public companies th d bli i throughout US h t US, Canada, Europe, Asia-Pacific, Africa and Israel • Strong cross-functional team leveraging transaction, operating, legal and engineering experience • Unparalleled software industry reputation and track record. • Highly referenceable base of past clients 4 Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved We Do Deals.
  6. 6. EXTENSIVE GLOBAL REACH Current Sell-side Representation • SEG currently represents software companies in the United States, Canada, France, Germany, Australia & Saudi Arabia Recent Sell-side Representation • In addition to the countries listed above, SEG has recently represented software companies in the United Kingdom, France, Netherlands, Israel, and South Africa SEG Research Distribution • SEG’s Quarterly and Annual Software Industry Equity Reports and Monthly Flash Reports are q y p y p distributed to an opt-in list of 50,000 public software company CEOs, software entrepreneurs, private equity managing directors, VCs, high tech corporate lawyers, p public accountants, etc. in 76 countries. , 5 Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved
  7. 7. ABOUT SOFTWARE EQUITY GROUP Software Equity Group is an investment bank and M&A advisory serving the software and technology sectors. Founded in 1992, our firm has guided and q y p y g gy , g advised companies on five continents, including privately-held software and technology companies in the United States, Canada, Europe, Asia Pacific, Africa and Israel. We have represented public companies listed on the NASDAQ, NYSE, American, Toronto, London and Euronext exchanges. Software Equity Group also advises several of the world's leading private equity firms. We are ranked among the top ten investment banks worldwide for application software mergers and acquisitions. Our value proposition is unique and compelling. We are skilled and accomplished investment bankers with extraordinary software internet and technology compelling software, domain expertise. Our industry knowledge and experience span virtually every software product category, technology, market and delivery model, including Software-as-a-Service (Saas), software on-demand and perpetual license. We have profound understanding of software company finances, operations and valuation. We monitor and analyze every publicly disclosed software M&A transaction, as well as the market, economy and technology trends that impact these deals. We're formidable negotiators and savvy dealmakers who facilitate strategic combinations that enhance shareholder value. Perhaps most important are the relationships we've built and th i d t reputation we enjoy. S ft P h ti t t th l ti hi ' b ilt d the industry t ti j Software E it Group is known and respected by publicly Equity G i k d t db bli l traded and privately owned software and technology companies worldwide, and we speak with them often. Our Quarterly and Annual Software Industry Equity Reports are read and relied upon by more than thousands of industry executives, entrepreneurs and equity investors in sixty-one countries, and we have been quoted widely in such leading publications as The Wall Street Journal, Barrons, Information Week, The Daily Deal, The Street.com, U.S. News & World Report, Reuters, Mergers & Acquisitions, USA Today, Arizona Republic, Detroit Free Press, Entrepreneur Magazine, Softletter, Software Success, Software CEO g Online and Software Business Magazine. To keep your finger on the pulse of the software equity markets, subscribe to our Annual and Quarterly Research Reports. Software Equity Group is an investment bank and M&A advisory serving the software and technology sectors. For a confidential consultation without obligation, please contact Kris Beible, Director, Business Development (858) 509-2800, kbeible@softwareequity.com . CONTACT INFORMATION: Software Equity Group, L.L.C. 12220 El Camino Real, Suite 320 San Diego, CA 92130 www.softwareequity.com www softwareequity com p: (858) 509-2800 The information contained in this Report is obtained from sources we believe to be reliable, but no representation or guarantee is made about the accuracy or completeness of such information, or the opinions expressed herein. Nothing in this Report is intended to be a recommendation of a specific security or company or intended to constitute an offer to buy or sell, or the solicitation of an offer to buy or sell, any security. Software Equity Group LLC may have an interest in one or more of the securities or companies discussed herein. Financial data provided by Capital IQ. This Report may not be reproduced in whole or in part without the expressed prior written authorization of Software Equity Group, L.L.C. Software Equity Group registers each Report with the U.S. Copyright Office and vigorously enforces its intellectual property rights. 6 Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved
  8. 8. SOFTWARE INDUSTRY MACROECONOMICS 7 Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved
  9. 9. GLOBAL GDP • • The global economy was constrained by the Europe’s continuing recession and slowing GDP growth in China, which is where a major experiment is underway to shift its economy from rural to urban based and consumer driven. • Other key emerging markets struggle with social unrest from high unemployment and lackluster growth. • 8 According to the Economist Global GDP growth slowed in 2Q13 (the latest data available) retreating to 2 1% from 3 1% in Economist, available), 2.1% 3.1% 2Q12. For the year, PIMCO forecasts Global GDP to grow 2.0% - 2.5%, up slightly from previous forecasts due to strengthened economies in the U.S. and Japan, which are hoped to offset Europe’s economic malaise and slowed growth among the larger emerging nations. Sources: Worldbank, The Economist and PIMCO Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved
  10. 10. U.S. GDP AND UNEMPLOYMENT 10% GDP % Growth Unemployment Rate 8% 6% 5.0% 3.6% 3 6% 4.1% 4 1% 3.7% 4% 2.2% 2.1% 1.5% 2% 3.1% 1.7% 3.1% 2.5% 2.6% 1.3% 0.4% 2.2% 2.5% 2.0% 1.8% 1.3% 0.4% 0% -0.7% 0 7% -0.7% -2% -2.7% -4% -6% -5.4% -6.4% 6 4% -8% 3Q07 3Q08 3Q09 3Q10 3Q11 3Q12 3Q13 • • 9 According to August’s Federal Reserve survey of 42 economists GDP growth in 3Q13 is predicted to be 2 2% For the year August s economists, 2.2%. year, expectations are the U.S. economy will grow 2.0%. PIMCO, however, is a bit more conservative. In its 3Q13 market perspectives, PIMCO forecast U.S. GDP growth of 1.5% - 2.0% for the year, citing continuing strength in the housing market. Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved
  11. 11. GLOBAL IT SPENDING 10.0% 9.0% 8.0% 6.0% 6.0% YoY Change  in IT Spending 5.0% 4.1% 2.0% 2.0% 2012 2013 0.0% 2007 2008 2009 2010 2011 2014 (F) ‐5.0% ‐10.0% -10 0% 10.0% ‐15.0% • In July analysts lowered their earlier forecast of 3 9% increase in Global IT spending to a mere 2% increase July, 3.9% increase. • Estimates for 2014 are more promising, with an array of economists forecasting 4.1% growth in Global IT spending. • According to Forrester, software is garnering the largest share of Global IT dollars, $542M in 2013. Software spending is expected to grow 3.3% in 2013, and 6.2% in 2014. • SaaS ft S S software spending i projected t i di is j t d to increase 25% i 2013 in 2013. • Especially hot IT Software spending priorities include: collaboration (13% YoY growth), business intelligence (11%), ePurchasing (10%), HR management (9%), and healthcare systems (8%). 10 Sources: IT spending numbers shown in charts are a blended average of Goldman Sachs, IDC, Forrester, Gartner forecasts Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved
  12. 12. E-COMMERCE AND DIGITAL ADVERTISING SPEND 20% 50,000 15% 40,000 10% 30,000 20,000 20 000 10,000 0 5% 0% ‐5% • U.S. e-commerce retail sales totaled $49.8B in 2Q13 (the latest data available), just shy of a third consecutive $50B+ quarter. • The Th Q2 total for online retail spending accounted for 9 6% of all t t lf li t il di t d f 9.6% f ll discretionary retail dollars spent, the highest on record. • • 11 12,000 10,000 30% 25% 20% 8,000 6,000 4,000 15% 10% 5% 0% 2,000 0 ‐5% ‐10% • U.S. digital advertising revenues totaled $10.3B in 2Q13 (the latest quarter data was available), which equates to an 18% YoY growth increase For the first-half of 2013 Internet increase. first half 2013, ad revenues surged to a landmark $20.1 billion. 2Q13’s 16% YoY growth in online sales marks the eleventh consecutive quarter of double-digit growth. • 2Q13’s strong first quarter follows on the heels of a strong 2012, when digital advertising soared 15% to $36.6B. Other e commerce categories with at least 19% YoY growth e-commerce included: Digital Content & Subscriptions, Apparel & Accessories, Sport & Fitness, Consumer Electronics, and Consumer Packaged Goods. • For the first time growth in mobile advertising revenue time, reached $3 billion for the first half of 2013, up 145% YoY. Sources: comScore, IAB, IBD Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved Yo % Change oY 60,000 Internet Advertising Revenue ($ Mil llions) Digital Advertising Revenue Yo % Change oY E-Commer Spending ($ Millions) rce E-Commerce Spending
  13. 13. SEG INDICES VS. BENCHMARK INDICES DOW 60.0% S&P NASDAQ SEG SaaS SEG SW Index SEG Internet Index 50.0% 40.0% 40 0% 30.0% 20.0% 10.0% 0.0% (10.0%) Jan Feb Mar Apr May Jun Jul Aug Sep • Optimism continued to prevail on Wall Street despite repeated warnings by the Federal Reserve in Q3 that it would retreat from its $85 billion monthly bond buying program – which it subsequently reversed in 3Q13. • The NASDAQ posted the best stock return of the three major stock indices in Q3, finishing up 11.2%. Through three quarters, the NASDAQ is up a whopping 24.9%. • The S&P, which returned 12.8% in the first half of the year, tacked on an additional 4.7% in 3Q. • After leading all major indices through the first half of the year with a return of 14 6% the DOW only gained an additional 1 2% in 14.6%, 1.2% Q3. YTD, the DOW’s 15.8% return is still highly respectable. • Both the SEG SaaS and the SEG Internet Index benefited from investors with greater risk tolerance, posting 28.2% (SaaS) and 23.7% (Internet) returns, respectively, by close of Q3. By contrast, the SEG Software lagged well behind, returning 13.3% in 3Q. • By close of Q3 the SEG SaaS and SEG Internet indexes have gained 50 7% (SaaS) and 48 5% (Internet) respectively Q3, 50.7% 48.5% (Internet), respectively. 12 Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved
  14. 14. PUBLIC SOFTWARE COMPANY FINANCIAL AND VALUATION PERFORMANCE: THE SEG SOFTWARE INDEX 13 Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved
  15. 15. THE SEG SOFTWARE INDEX SEG - Software: Median Metrics Measure EV/Revenue EV/EBITDA EV/Earnings Gross Profit Margin EBITDA Margin M i Net Income Margin TTM Revenue Growth TTM Total Revenue ($M) TTM EBITDA Growth TTM Total EBITDA ($M) Cash & Eq ($M) Current Ratio Debt / Equity Ratio 3Q12 2.7x 11.5x 22.6x 65.8% 19.2% 19 2% 9.4% 14.7% $427.0 15.9% $71.2 $157.3 2.0 21.3% 4Q12 2.6x 11.8x 22.1x 65.9% 19.6% 19 6% 9.9% 14.0% $452.3 9.4% $75.1 $159.7 2.0 22.5% 1Q13 2.8x 13.3x 24.0x 66.1% 19.3% 19 3% 8.7% 12.8% $461.7 7.2% $76.0 $169.3 1.9 25.1% 2Q13 2.7x 12.6x 24.4x 66.5% 18.6% 18 6% 8.2% 11.7% $471.9 5.4% $82.7 $180.9 1.9 26.6% 3Q13 3.0x 13.5x 28.0x 67.1% 18.7% 18 7% 8.2% 10.0% $483.6 6.1% $86.0 $175.9 2.0 23.1% • The SEG Software Index tracks public software companies that primarily offer onpremise software under a perpetual license with annual M&S • The SEG Software Index is currently comprised of 133 public software companies* i * * See appendix for a complete list of companies in The SEG Software Index 14 Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved
  16. 16. THE SEG SOFTWARE INDEX: FINANCIAL PERFORMANCE Revenue Performance TTM Total  Revenue ($M) TTM Revenue Growth Rate Distribution 14% $470 12% $460 $450 10% $440 8% $430 6% $420 4% $410 31% 30% % of Co ompanies $480 35% 16% TTM Reven nue Growth $ $490 TTM Total Revenue 70% of public on-premise software companies had TTM revenue growth rates of 20% or below TTM Revenue Growth 24% 25% 20% 15% 14% 15% 10% 10% $400 2% 0% 6% 5% $390 0% 3Q12 4Q12 1Q13 2Q13 3Q13 • • Perhaps as testament to how much consolidation has occurred among on-premise providers, the median TTM revenue of the SEG Software Index reached $483.6M, the highest in history, and the highest among our three tracking indices. • <= 0% On-premise software companies lost market share to SaaS providers, and continued to be buffeted by tightly constrained IT capital budgets and macro economic headwinds The headwinds. median TTM revenue growth rate of the SEG Software Index dropped to 10.0%, the fourth consecutive quarterly of decline. We expect TTM revenue growth for most on-premise public software companies to remain modest for the balance of the year, year which portends more acquisitions and R&D spending to spur top line growth. 15 Of the 16% of companies with TTM revenue growth rates of 30% or more, a disproportionate number are focused on mobility and cloud computing Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved > 0% <= 10% > 10% <= 20% > 20% <= 30% TTM Revenue Growth > 30% <= 40% > 40%
  17. 17. THE SEG SOFTWARE INDEX: FINANCIAL PERFORMANCE EBITDA Margin Performance TTM EBITDA  Growth 22% 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 30% 18% 16% 12% 10% 8% 6% 4% Almost one in three on-premise software companies posted EBITDA margins of 20% - 30% 26% 18% 20% 15% 10% 11% 10% 6% 5% 2% 0% 3Q12 4Q12 1Q13 2Q13 3Q13 • • 0% <= 0% The median EBITDA margin of public on-premise software companies remained at historic levels, closing 3Q13 at p , g Q 18.7%. In the current scenario, it’s unlikely members of the SEG Software Index will be able to push much more to the bottom line. Their median TTM EBITDA growth plunged from 15.9% YoY in 3Q12 to only 5 4% YoY growth in 3Q13 5.4% 3Q13. 16 27% 25% % of Co ompanies 14% TTM EBITD DA Growth EBITDA  Margin EBITDA Margin TTM EBITDA Margin Distribution Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved > 0% <= 10% > 10% <= 20% > 20% <= 30% TTM EBITDA  Margin > 30% <= 40% > 40%
  18. 18. THE SEG SOFTWARE INDEX: FINANCIAL PERFORMANCE Operating Ratios S&M (% of Revenue) R&D (% of Revenue) Margin Performance G&A (% of Revenue) Gross Prof it Margin EBITDA Margin Net Income Margin 80% 25% 70% 60% % Margin M % of R Revenue 20% 15% 10% 50% 40% 30% 20% 5% 10% 0% 0% 3Q12 • • • 17 4Q12 1Q13 2Q13 3Q13 Among public on-premise software compnaies, median spending in Q was consistant with historical norms: 14.9% p g Q3 for Research & Development, 23.2% for Sales & Marketing, and 10.8% for General & Administrative. Over the past year, S&M, R&D and G&A expenses as a percent of revenue have remained flat. Median S&M spending among on-premise public software companies lagged far behind their SaaS counterparts, which continued to invest heavily in new customer acquisition (39.3% for SaaS and 23.2% for on-premise). 3Q12 4Q12 1Q13 2Q13 3Q13 • In 3Q13, median gross profit, EBITDA and net income margins were 67.1%, 18.7% and 8.2%, respectively. g , , p y • Several on-premise providers achieved gross profit margins of 89% or greater, including: Sage Group (93.9%), Unit 4 (92.8%), SolarWinds (92.7%), Splunk (89.0%). • We anticipate EBITDA margins and net income margins will likely decline over the next several quarters, as on-premise software companies increase their investments in R&D to improve products/delivery models, and in sales & marketing to accelerate TTM revenue growth. Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved
  19. 19. THE SEG SOFTWARE INDEX: MARKET MULTIPLES EV/Revenue and EV/EBITDA Multiples EV/Revenue Multiples by Size (TTM Revenue) Revenue Greater Than $1 billion 4.0x 11.5x 11.8x 12.6x 13.5x 10.0x 8.0x 8 0x 6.0x 2.7x 2.6x 2.8x 3.0x 2.7x 3.5x Median EV V/Revenue 13.3x 14.0x 4.0x Revenue Less Than $100 million EV/EBITDA 16.0x 16 0x 12.0x Revenue Between $500 million and $1 billion Revenue Between $100 million and $500 million EV/Revenue 3.0x 2.5x 2.0x 2 0x 1.5x 1.0x 2.0x 0.5x 0.0x 00 0.0x 0 0x 3Q12 4Q12 1Q13 2Q13 3Q12 3Q13 4Q12 1Q13 2Q13 3Q13 • Despite slowing growth and EBITDA erosion, the median EV/Revenue multiple of public on-premise software companies ticked up 30 basis p points 3Q13, closing the q , g quarter at 3.0x. • Investors in 3Q13 continued to place higher value on larger public software companies with revenues >$100 million. • • This marks only the second time since 1Q06 that the SEG Software Index median EV/Revenue multiple reached 3.0x or higher. The other quarter was 2Q11 when the multiple 3.1x. Throughout 2012 and into 3Q13 the EV/Revenue multiples of 2012, 3Q13, on-premise software companies with revenues <$100 million remained markedly lower than their larger counterparts. • SEG Software Index companies with TTM revenue between $100M and $1B successfully balanced TTM revenue growth (median 16.6%) and profitability (median EBITDA of 15 3%) and 16 6%) 15.3%), were rewarded with the highest median EV/Revenue multiples. • The higher EV/Revenue median multiples are most likely attributed to a higher percentage of recurring revenue as many on premise software revenue, on-premise providers transition to subscription pricing and periodic license models. • Adobe is a great example. As the company converts to a SaaS model, its revenue growth rate has rapidly decelerated (11.0%, 4.4%, (5.3%) in 2010, 2011, 2012, respectively) yet its EV/Revenue multiple has grown from 2 9x to 5 8x over the same period due to a growing percentage of 2.9x 5.8x recurring revenue. 18 Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved
  20. 20. THE SEG SOFTWARE INDEX: MARKET MULTIPLES EV/Revenue Multiples vs. TTM Revenue Growth Rates 5.7x 6.0x EV/Revenue Multiples vs. TTM EBITDA Margins 7.0x 5.6x 6 6.1x 6.0x 4.0x Median EV/Revenue E Median EV/Revenue E 5.0x 3.3x 2.8x 3.0x 3.0x 2.0x 1.2x 5.0x 4.0x 3.0x 30 3.2x 3.3x > 20% <= 30% > 30% <= 40% 2.6x 2 6x 2.4x 2.0x 2.0x 1.0x 1.0x 0.0x 0.0x <= 0% > 0% <= 10% > 10% <= 20% > 20% <= 30% > 30% <= 40% > 40% <= 0% > 0% <= 10% TTM Revenue Growth > 10% <= 20% > 40% TTM EBITDA Margin • Investors awarded markedly higher market multiples to public on premise software companies with revenue growth on-premise exceeding 20%. • Premium market multiples were awarded to the select few onpremise software providers generating EBITDA margins north of 40%. • Indeed, public on-premise software companies with revenue growth rates of 20%-30% and greater than 40% closed 3Q13 with median EV/Revenue multiples of 5.7x and 5.6x, respectively • Surprisingly, the EV/Revenue multiple range for most onpremise software companies was relatively narrow, suggesting investors were seemingly indifferent to sub 40% profitability, a stark reversal from prior quarters. 19 Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved
  21. 21. THE SEG SOFTWARE INDEX: BY PRODUCT CATEGORY SEG Software Index EV/Revenue Category EV/EBITDA TTM Revenue Growth EBITDA Margin 3Q12 Billing & Service Management 4Q12 1Q13 2Q13 3Q13 3Q12 4Q12 1Q13 2Q13 3Q13 3Q12 4Q12 1Q13 2Q13 3Q13 3Q12 4Q12 1Q13 2Q13 3Q13 1.3x 1.5x 1.9x 1.9x 2.3x 8.0x 8.2x 8.4x 8.3x 8.7x 9.5% 10.4% 10.4% 8.9% 16.9% 18.8% 19.8% 20.7% 18.7% 18.4% 13.3% Business Intelligence 3.7x 3.2x 3.4x 3.0x 3.3x 25.6x 17.5x 15.8x 16.5x 17.1x 13.8% 13.2% 11.8% 13.1% 14.2% 16.5% 14.7% 14.0% 13.6% Development Platforms 2.5x 2.5x 2.5x 2.6x 2.6x 8.2x 9.6x 9.1x 10.1x 14.2x 3.5% 1.6% 3.0% 0.6% -0.3% 24.7% 23.5% 21.1% 20.3% 20.4% Engineering & PLM 2.6x 2.5x 2.7x 2.7x 2.8x 12.1x 11.8x 13.4x 12.4x 13.8x 13.2% 14.0% 13.1% 11.7% 8.4% 20.5% 20.6% 20.7% 20.5% 20.3% Enterprise Resource Planning 2.1x 2.2x 2.3x 2.5x 2.5x 9.2x 9.1x 10.1x 12.1x 12.2x 4.7% 3.4% 2.6% 1.5% 2.2% 23.2% 23.1% 22.8% 22.4% 22.2% Financial & Accounting 2.9x 2.9x 3.1x 3.3x 3.3x 9.8x 9.8x 10.5x 11.3x 12.0x 17.2% 13.8% 8.6% 10.7% 9.5% 29.0% 28.8% 27.5% 26.6% 26.1% Gaming 1.0x 1.0x 1.1x 1.3x 1.7x 9.1x 8.0x 7.1x 9.4x 11.3x 2.2% 0.1% 7.4% 15.1% 14.9% 14.9% 15.7% 14.9% 15.4% 14.6% Healthcare 2.2x 2.1x 2.1x 2.1x 2.5x 12.8x 11.3x 14.8x 17.6x 16.1x 24.2% 19.6% 10.7% 11.0% 9.4% 20.6% 18.5% 13.4% 14.1% 14.3% IT Conglomerates 2.8x 2.5x 2.5x 2.9x 2.7x 8.4x 8.0x 9.0x 8.7x 8.3x 1.5% 1.4% 0.5% 0.2% 1.2% 36.1% 34.6% 33.8% 33.8% 34.3% Mobile Solutions/Content 3.2x 3 2x 2.5x 2 5x 2.7x 2 7x 2.8x 2 8x 3.0x 3 0x 13.8x 13 8x 11.9x 11 9x 20.6x 20 6x 13.2x 13 2x 13.5x 13 5x 44.9% 44 9% 48.1% 48 1% 44.5% 44 5% 24.6% 24 6% 13.2% 13 2% 7.8% 7 8% 6.4% 6 4% 4.5% 4 5% 7.9% 7 9% 8.0% 8 0% Networking & Network Performance Management 3.0x 3.0x 2.8x 2.7x 2.8x 16.4x 14.9x 15.3x 17.0x 17.0x 17.3% 14.6% 15.2% 11.0% 6.5% 16.3% 16.0% 16.1% 15.0% 14.3% Security 4.2x 3.1x 3.5x 4.5x 4.9x 11.5x 11.9x 20.7x 16.7x 12.7x 22.8% 23.9% 23.8% 21.8% 21.2% 18.4% 17.1% 8.1% 7.3% 7.5% 2.5x 2.3x 2.4x 2.4x 2.7x 9.2x 8.4x 9.2x 8.8x 8.9x 6.3% 6.5% 4.8% 4.1% 3.3% 23.9% 23.8% 22.2% 21.9% 22.2% 2.5x 2.9x 3.3x 3.4x 4.1x 10.5x 12.7x 14.5x 15.0x 17.1x 15.9% 11.2% 11.3% 9.3% 10.2% 17.1% 16.6% 16.0% 15.3% 19.2% Storage, Data Management & Integration Supply Chain Management & Logistics Systems Management 6.9x 5.7x 5.6x 5.0x 5.4x 26.6x 24.6x 23.0x 20.9x 19.7x 18.7% 17.4% 17.2% 16.1% 16.4% 25.9% 25.0% 24.4% 23.8% 24.2% Vertical - Finance 3.2x 3.0x 3.4x 3.8x 3.7x 10.6x 9.4x 10.7x 11.4x 12.6x 6.3% 7.1% 6.7% 7.6% 7.4% 26.2% 26.3% 26.5% 27.3% 26.0% Vertical - Other 2.9x Median 2.9x 3.0x 3.2x 3.6x 21.2x 21.3x 22.0x 22.1x 20.8x 28.0% 19.8% 21.3% 21.0% 22.2% 14.3% 14.0% 14.1% 14.4% 15.5% 2.7x 2.6x 2.8x 2.7x 3.0x 11.5x 11.8x 13.3x 12.6x 13.5x 14.7% 14.0% 12.8% 11.7% 10.0% 19.2% 19.6% 19.3% 18.6% 18.7% • The SEG Software Index is segmented into 17 product categories • See Appendix for the complete list of companies within each product category 20 Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved
  22. 22. 40% 35% 30% 25% 20% 15% 10% 5% 0% 21 (100%) Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved Vertical - Oth her nce Vertical - Finan Systems … Supply Cha … ain Storage, Da … ata Secur rity Networking & … g Mob … bile IT Conglomerat tes Healthca are ing Gami Financial & … 3Q13 TTM EBITDA Margin Enterpr … rise Develop pment … Vertical - Other O Vertical - Fin nance Sys stems … C Supply Chain … Storage, Data… Sec curity Network king & … M Mobile… IT Conglome erates Health hcare Ga aming Financ & … cial Enter rprise… Engineering & PLM 5% Engineering & PL LM 10% Business Intellig gence 15% Billing & Se ervice … 3Q13 TTM Revenue Growth Developme … ent 20% 100% 80% 60% 40% 20% 0% (20%) (40%) (60%) (80%) (100%) Bu usiness Intelligen nce Vertical - Other Vertical - Fin nance stems … Sys Supply Chain … Storage, Data… Se ecurity Network king & … M Mobile… erates IT Conglome Healt hcare aming Ga Financial & … Ente erprise… Engineering & PLM Develop pment … Business Intellig gence 25% Billing & Servi … ice Vertical - Othe er Vertical - Financ e System … ms Supply Chain … Storage, Dat … ta Securit ty Networking & … Mobil … le IT Conglomerate es Healthcare re Gaming g Financial & … Enterpris e… Engineering & PLM M Developmen … nt Bus siness Intelligenc e (5%) Billing & Se ervice … 0% Billing & Servic e … THE SEG SOFTWARE INDEX BY PRODUCT CATEGORY: FINANCIAL PERFORMANCE 3Q13 YoY Change in Revenue Growth 20% 3Q13 YoY Change EBITDA Margin 0% (20%) (40%) (60%) (80%)
  23. 23. THE SEG SOFTWARE INDEX BY PRODUCT CATEGORY: MARKET MULTIPLES 3Q13 Median EV/Revenue Multiples 3Q13 YoY Change in Median EV/Revenue Multiples 100% 6.0x 80% 5.0x 5 0x 60% 4.0x 40% Vertical - Other Vertical - Finance F Systems Manag gement Sup ply Chain Manage ement &… Stora age, Data Management &… S Security Networking & Network… N M Mobile Solutions/C Content IT Conglom merates Hea althcare G Gaming Financial & Acco ounting rprise Resource Pl anning Enter Engineering & PLM Development Pla atforms Business Intel ligence Billing & Service Manag gement Vertical - Other Vertical - Fin nance (40%) Systems Manage ement Sup pply Chain Manage ement… Stor rage, Data Manage ement… Se ecurity Networking & Ne etwork… M Mobile Solutions/Co ontent IT Conglome erates Healt thcare Ga aming 0.0x Financial & Accou unting (20%) Enterp prise Resource Pla anning 1.0x Engineering & PLM 0% Development Plat tforms 2.0x Business Intellig gence 20% Billing & Se ervice… 3.0x • In 3Q13, seven product categories achieved median EV/Revenue multiples above the SEG Software Index median of 3.0x, including Systems Management (5.4x), Security (4.9x), Supply Chain Mgmt & Logistics (4.1x), Vertical - Finance (3.7x), Vertical - Other (3.6x), Financial & Accounting (3.3x), Business Intelligence (3.3x). • For some categories, TTM revenue growth translated to an impressive EV/Rev market valuation (Security, Systems Mgmt), while other categories demonstrated a curious disconnect between market valuation and top line growth (Billing & Service Mgmt, Vertical - Other). • The Systems Management product category, benefitting from the rapid shift to cloud computing and growing demand for cloud infrastructure, achieved the highest median EV/Revenue multiple (5.4x) in 3Q13, driven by strong TTM revenue growth (16.4%) and EBITDA margins (24.2%) – b th above th median f th i d i (24 2%) both b the di for the index. 22 Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved
  24. 24. PUBLIC SaaS COMPANY FINANCIAL AND VALUATION PERFORMANCE: THE SEG SaaS INDEX 23 Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved
  25. 25. THE SEG SaaS INDEX SEG - SaaS: Median Metrics Measure EV/Revenue EV/EBITDA EV/Earnings Gross Profit Margin EBITDA Margin Net Income Margin TTM Revenue Growth TTM Total Revenue ($M) TTM EBITDA Growth TTM Total EBITDA ($M) Cash & Eq ($M) Current Ratio Debt / Equity Ratio 3Q12 5.5x 41.5x 40.9x 70.5% 6.9% -0.9% 28.7% $108.1 26.0% $6.0 $6 0 $67.0 1.5 6.9% 4Q12 4.8x 41.7x 40.2x 70.9% 6.9% -0.3% 26.8% $117.5 20.6% $6.0 $6 0 $66.1 1.6 5.7% 1Q13 5.3x 35.4x 63.8x 70.8% 5.7% -1.8% 25.3% $127.7 7.9% $6.8 $6 8 $68.0 1.8 6.5% 2Q13 5.7x 31.5x 106.1x 70.8% 2.3% -4.0% 25.0% $143.1 3.0% $5.1 $5 1 $74.7 1.5 6.4% 3Q13 6.5x 40.6x 125.4x 70.3% 2.1% -4.5% 30.6% $163.8 7.2% $2.7 $2 7 $89.1 2.2 8.3% • The SEG SaaS Index tracks public companies that primarily offer hosted, ondemand software under a subscription and/or transaction based pricing model • The SEG SaaS Index is currently comprised of 41 public pure-play SaaS companies* i * * See appendix for a complete list of companies in The SEG SaaS Index 24 Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved
  26. 26. THE SEG SaaS INDEX: FINANCIAL PERFORMANCE Revenue Performance TTM Total  Revenue ($M) TTM Revenue Growth Rate Distribution TTM Revenue Growth $180 $160 25.0% $120 $100 20.0% $80 15.0% $60 10.0% $40 % of Co ompanies 30.0% $140 29% 30% TTM Reven nue Growth TTM Total l Revenue 35% 35.0% 25% 20% 15% revenue growth of 40% or more 26% 24% Only 3% of public SaaS companies generated TTM revenue growth of 10% or l less 10% $20 5.0% 0.0% 0 0% 6% 5% $0 0% 3% 0% 3Q12 4Q12 1Q13 2Q13 3Q13 • • > 0% <= 10% Public SaaS companies continued to grow, mature and gain market share; Q3’s median TTM revenue exceeded $160M, up sharply from 3Q12’s $108M. • <= 0% After declining for four consecutive quarters, the median TTM revenue growth rate for the SEG SaaS Index edged up to 30.6% in 3Q13. The sharp uptick in median revenue growth is largely attributed to a host of new market grabbing SaaS IPOs in 3Q13. Select examples include: FireEye (109% TTM Revenue Growth;), Tableau Software (71%), Textura (65%), Marketo (62.0%), and Cvent (36%). 25 29% 30% achieved TTM Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved > 10% <= 20% > 20% <= 30% > 30% <= 40% TTM Revenue Growth > 40% <= 50% > 50%
  27. 27. THE SEG SaaS INDEX: FINANCIAL PERFORMANCE EBITDA Margin Performance EBITDA Margin TTM EBITDA Margin Distribution 85% with EBITDA margins of 20% or lower TTM EBITDA  Growth 8% 40% 30% 35% 35% 30% 4% 15% 10% 2% 5% 0% 0% 3Q12 4Q12 1Q13 2Q13 3Q13 • 25% 18% 20% 13% 15% 10% 5% 5% 0% <= 0% After peaking in 2010, the median EBITDA margin of public SaaS companies has declined every quarter since. • 30% % of Co ompanies EBITDA  Margin 20% TTM EBITD DA Growth 25% 6% Ther trend continued in 3Q13 as the median EBITDA margin was 2.1%, down from 3.0% in 2Q13. 26 Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved > 0% <= 10% > 10% <= 20% TTM EBITDA  Margin > 20% <= 30% > 30%
  28. 28. THE SEG SaaS INDEX: FINANCIAL PERFORMANCE Median Operating Ratios S&M (% of Revenue) R&D (% of Revenue) Median Margin Performance Gross Profit Margin G&A (% of Revenue) 70% 35% Net Income Margin 80% 40% 60% 30% % Ma argin % of Re evenue 45% EBITDA Margin 25% 20% 15% 50% 40% 30% 10% 20% 5% 10% 0% 0% 3Q12 4Q12 1Q13 2Q13 3Q12 3Q13 4Q12 1Q13 2Q13 3Q13 • Increased spending on sales and marketing by public SaaS companies accounted for much of the decline in median EBITDA margin. • Median gross profit margins for public SaaS companies in 3Q13 were 70.3%, and have remained steady over the past , y p five quarters. • In 3Q13, 39.3% of total revenue was spent on sales & marketing, relatively unchanged from the 39.7% spent in 3Q12. • Stable gross profit margins demonstrate the ability of public SaaS companies to grow without disproportionally scaling infrastructure and increasing application delivery costs. • R&D spending as a percent of revenue increased to 18.1% in 3Q13, compared to 16.9% in 3Q12. • With growth as their primary objective, public SaaS companies are running close to break even, with net income in 3Q13 of -4.5%. 27 Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved
  29. 29. THE SEG SaaS INDEX: MARKET MULTIPLES EV/Revenue and EV/EBITDA Multiples EV/Revenue 41.5x EV/EBITDA 45% 41.7x 40.0x 40.6x 35.4x 35.0x 35% 31.5x 30.0x 25.0x 20.0x 20 0x 15.0x 10.0x 5.5x 5.0x 4.8x 5.3x 30% 25% 20% 15% 10% 6.5x 5.7x 41% 40% % of C Companies 45.0x EV/Revenue Multiple Distribution 5% 0.0x 5% 8% 11% 11% 5% 0% 11% 5% 3% 0% 3Q12 4Q12 1Q13 2Q13 3Q13 <= 1.0x > 1.0x > 2.0x > 3.0x  > 4.0x > 5.0x > 6.0x > 7.0x > 8.0x > 9.0x <= 2.0x <= 3.0x <= 4.0x <= 5.0x <= 6.0x <= 7.0x <= 8.0x <= 9.0x EV/Revenue • Median EV/Revenue multiples for public SaaS providers reached a breathtaking 6.5x at the close of 3Q13. g Q • This marks the first time since 4Q07 that the median EV/Revenue multiples for public SaaS providers exceeded 6x. 28 Public SaaS providers in 3Q13 continued to trade at a significant premium relative to their on-premise peers (6.5x vs. 3.0x). A class of Tier 1 SaaS providers is emerging within the SaaS Index, earning premium EV/Revenue multiples from , gp p investors • As testament, a whopping 41% of the companies in the SEG SaaS Index are trading for 9x TTM revenue or greater • These leaders demonstrate high growth and a dominant position in large markets with proven ability to replace incumbent on premise providers. Examples include Salesforce, Workday, NetSuite, etc. • • • 30% of public SaaS providers had median EV/Revenue multiples between 5x and 9x 9x. Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved
  30. 30. THE SEG SaaS INDEX: MARKET MULTIPLES EV/Revenue Multiples vs. TTM Revenue Growth Rates EV/Revenue Multiples vs. TTM EBITDA Margins 16.0x 25.0x 12.0x Median  EV/Revenue Median  EV/Revenue 20.0x 14.2x 14.0x 19.9x 10.0x 15.0x 10.0x 8.0x 6.8x 5.7x 4.0x 5.0x 2.1x 7.3x 8.0x 5.1x 6.0x 4.0x 2.0x 0.0x 0.0x 0.0x <= 0% > 0% <= 10% > 10% <= 20% > 20% <= 30% > 30% <= 40% > 40% <= 50% <= 0% > 50% TTM Revenue Growth > 0% <= 10% > 10% <= 20% > 20% <= 30% > 30% TTM EBITDA  Margin • There is a very strong correlation between the median TTM revenue growth rate and median EV/Revenue multiple of public SaaS companies. • Public SaaS companies growing TTM revenue in excess of 50% achieved a stellar median EV/Revenue multiple of 19.9x. • Select companies with TTM growth rates of 50% or higher include: FireEye (109% TTM revenue growth rate, 38.6x EV/Revenue); Service-now (84.5%, 17.6x); Workday (77.4%, 33.7x); Tableau Software (71.0%, 22.1x); Textura Corp. ( (65.0%, 23.2x); Marketo (62.0%, 15.1x), Cornerstone , ); ( , ), OnDemand (60.2%, 17.1x); Ellie Mae (57.2%, 5.7x). 29 4.8x 3.8x • There is an inverse correlation between EBITDA margins and median EV/Revenue multiples multiples. • In the current market, SaaS profitability is penalized, as investors perceive profitability to be at the expense of growth, which they deem all important. • As proof, public SaaS companies with no profitability boasted a remarkable 14.2x median EV/Revenue multiple in 3Q13. Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved
  31. 31. THE SEG SaaS INDEX BY PRODUCT CATEGORY SEG SaaS Index EV/Revenue Category Forward EV/Revenue TTM Revenue Growth EBITDA Margin 3Q12 4Q12 1Q13 2Q13 3Q13 3Q12 4Q12 1Q13 2Q13 3Q13 3Q12 4Q12 1Q13 2Q13 3Q13 3Q12 4Q12 1Q13 2Q13 CRM & Marketing 4.7x 3.4x 2.7x 2.7x 4.0x 3.8x 2.4x 2.0x 2.8x 3.4x 33.2% 36.1% 37.2% 26.7% 27.3% 4.4% 3.1% 2.8% 2.2% 3Q13 2.1% ERP & Supply Chain 5.5x 7.0x 6.6x 7.1x 9.3x 5.3x 5.7x 5.7x 6.7x 7.6x 26.3% 25.3% 31.8% 33.9% 37.7% 6.7% 7.2% 3.2% 0.2% -0.6% 16.4% 16.0% 15.8% Vertically Focused 5.7x 4.7x 5.0x 5.0x 5.7x 4.6x 3.9x 4.2x 3.8x 5.2x 32.0% 27.7% 21.6% 21.5% 22.6% 15.3% 14.6% Workforce Management 8.3x 10.5x 10.7x 8.5x 10.4x 7.3x 7.6x 8.0x 7.4x 8.8x 28.7% 29.1% 23.4% 43.1% 42.2% -15.0% -16.2% -17.8% -16.1% -14.4% 5.5x 4.8x 5.3x 5.7x 6.5x 4.9x 4.5x 5.3x 5.3x 6.4x 28.7% 26.8% 25.3% 25.0% 30.0% 6.9% Median: 6.9% 5.7% 2.3% 2.1% Currently comprised of 41 public companies, The SEG SaaS Index has critical mass in four distinct SaaS product categories sufficient to analyze and compare financial performance trends Select trends. companies within each SaaS category are included below. See the appendix to this report for the complete list. CRM Marketing & Marketing ti CRM & MM kk ti 30 ERP S Supply Ch ERP && S l Ch i i l Chain Supply Chain F d Vertically Focusedd Vertically Focused V Vti ti llll F Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved M t WorkforceM Management t Workforce Management W Wkfkf
  32. 32. THE SEG SaaS INDEX BY PRODUCT CATEGORY: FINANCIAL PERFORMANCE 3Q13 YoY Change in Revenue Growth 3Q13 TTM Revenue Growth 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 3Q13 TTM EBITDA Margin Workf orce Management Vertically Focused 3Q13 YoY Change EBITDA Margin Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved Workf orce t Management Vertically Focused d ERP & Supply Chain P n Workf orce Management Vertically Focused ERP & Supply Chain CRM & Marketing C CRM & Marketing g 20%  0%  (20%) ( ) (40%) (60%) (80%) (100%) (120%) 20%  15%  10%  10% 5%  0%  (5%) (10%) (15%) (20%) 31 ERP & Supply Chain CRM & Marketing Workf orce M Management Vertically Focused ERP & S Supply Chain CRM & Marketing 60%  50%  40%  30%  30% 20%  10%  0%  (10%) (20%) (30%) (40%)
  33. 33. THE SEG SaaS INDEX BY PRODUCT CATEGORY: MARKET MULTIPLES 3Q13 Median EV/Revenue Multiples 3Q13 YoY Change in Median EV/Revenue Multiples 4.0x 2.0x Workforce t Management Vertically y Focused d ERP & n Supply Chain CRM & g Marketing 0.0x Workf orce Managemen nt 6.0x Vertically y Focused d 8.0x ERP & Supply Chain n 10.0x CRM & Marketing g 80% 70% 60% 50% 40% 30% 20% 10% 0% (10%) (20%) 12.0x 12 0 • Public SaaS companies comprising the Workforce Management category achieved a 10.4x median EV/Revenue multiple, followed g g g y closely by ERP & Supply Chain (9.3x). • The stellar market valuations of these SaaS Workforce Management providers can be attributed to their breakneck TTM revenue growth (42.2%), albeit, with little or no profitability. • Workforce management SaaS providers continued to benefit from a continuing migration from legacy, on-premise solutions to hosted SaaS solutions. • Although ERP & Supply Chain TTM revenue growth was only slightly above the SaaS median, companies within this product category received premium market multiples because of the massive market potential of hosted ERP & Supply Chain solutions. 32 Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved
  34. 34. PUBLIC INTERNET COMPANY FINANCIAL AND VALUATION PERFORMANCE: THE SEG INTERNET INDEX 33 Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved
  35. 35. PublicSEG INTERNET INDEX Valuations by Product Category THE Internet Company Market SEG - Internet: Median Metrics Measure 3Q12 4Q12 1Q13 EV/Revenue 2.0x 2.2x 2.1x EV/EBITDA 13.5x 13.3x 13.6x EV/Earnings 25.1x 22.0x 21.9x Gross Profit Margin 64.8% 64.9% 65.6% EBITDA Margin 12.5% 12.7% 12.9% Net Income Margin 3.9% 5.3% 4.2% TTM Revenue Growth 24.4% 21.0% 20.1% TTM Total Revenue ($M) $374.2 $387.3 $393.3 TTM EBITDA Growth 21.8% 12.3% 17.8% TTM Total EBITDA ($M) ($ ) $ $39.5 $ $39.8 $ $37.5 Cash & Eq ($M) $122.3 $130.4 $142.9 Current Ratio 2.7 2.5 2.3 Debt / Equity Ratio 13.8% 21.0% 19.7% 2Q13 2.3x 15.1x 27.5x 65.4% 12.4% 2.6% 19.3% $405.8 10.7% $ $38.2 $154.9 2.4 20.7% 3Q13 2.7x 18.4x 32.5x 65.1% 11.8% 2.3% 16.8% $427.5 15.6% $ $43.4 $165.6 2.2 20.6% • The SEG Internet Index tracks public companies that primarily offer B2C solutions over the Internet using a wide array of pricing models • The SEG Internet Index is currently comprised of 92 public Internet companies* i * * See appendix for a complete list of companies in The SEG Internet Index 34 Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved
  36. 36. Initial SEG INTERNET INDEX: FINANCIAL PERFORMANCE THE Public Offerings Revenue Performance TTM Revenue Growth 25% 30.0% 30 0% 25.0% 20.0% 15.0% 15 0% 10.0% 5.0% 4Q12 1Q13 2Q13 19% 20% 0.0% 0 0% 3Q12 23% 22% % of Co ompanies $440 $430 $420 $410 $400 $390 $380 $370 $360 $350 $340 TTM Reven nue Growth TTM Total l Revenue TTM Total  Revenue ($M) TTM Revenue Growth Rate Distribution 3Q13 • 9% 10% 5% 0% <= 0% > 0% <= 10% The SEG Internet Index had an impressive number of star performers, 19% of companies in the index reported TTM revenue growth greater than 40% in 3Q13. • 13% While lower, Q3’s median Internet growth rate remains healthy, especially considering the median TTM revenue of the SEG Internet Index is $427.5M, compared to only $163.8M for the SEG SaaS Index. Index • 15% In 3Q13, the median YoY TTM revenue growth rate of public companies comprising the SEG Internet Index declined from 19.3% to 16.8%. • 16% Conversely, 22% of companies in the SEG Internet Index posted negative TTM revenue growth, depressing the median as a whole. 35 Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved > 10% <= 20% > 20% <= 30% TTM Revenue Growth > 30% <= 40% > 40%
  37. 37. THE SEG INTERNET INDEX: FINANCIAL PERFORMANCE EBITDA Margin Performance EBITDA Margin TTM EBITDA  Growth 14% 30% 25% 26% 23% 8% 15% 6% 10% 4% 5% 2% 0% 0% 3Q12 4Q12 1Q13 2Q13 3Q13 • 11% > 20% <= 30% > 30% <= 40% 10% 5% 0% <= 0% > 0% <= 10% 46% of all public Internet companies posted EBITDA margins of 10% or lower lower. 36 11% 10% The median EBITDA margin decline was partly due to a greater number of Internet IPOs with stellar revenue growth, but little, if any, profitability. • 15% The median ~12% Internet Index EBITDA margin for 3Q13 is markedly lower than the 18.1% median EBITDA achieved in 1Q11. • 20% 20% Over the past five quarters, public Internet companies managed to maintain respectable EBITDA margins ( g p g (11.8%), ), despite their declining revenue growth rates. • % of Co ompanies 20% 10% TTM EBITD DA Growth 25% 12% EBITDA  Margin TTM EBITDA Margin Distribution Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved > 10% <= 20% TTM EBITDA  Margin > 40%
  38. 38. THE SEG INTERNET INDEX: FINANCIAL PERFORMANCE Median Operating Ratios S&M (% of Revenue) R&D (% of Revenue) Median Margin Performance Gross Profit Margin G&A (% of Revenue) Net Income Margin 70% 25% 60% 20% 50% 15% % Ma argin % of Re evenue EBITDA Margin 10% 40% 30% 20% 5% 10% 0% 0% 3Q12 4Q12 1Q13 2Q13 3Q13 3Q12 4Q12 1Q13 2Q13 3Q13 • In 3Q13, companies comprising the SEG Internet Index spent 23.2% of total revenue on sales and marketing (S&M), 11.5% on research development ( p (R&D), and 11.3% on g ), general and administrative. • The median R&D spend as a percent of total revenue was the lowest among our three tracking indices. • Despite TTM revenue growth declines, public Internet companies kept their cost structures in line, resulting in a median TTM EBITDA margin of 11.8% in 3Q13. 37 Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved
  39. 39. THE SEG INTERNET INDEX: MARKET MULTIPLES Median EV/Revenue and EV/EBITDA Multiples EV/Revenue EV/EBITDA 25% 23% 18.4x 18 4x 20% 15.1x 13.5x 2.0x 13.3x 2.2x 13.6x 2.1x % of Co ompanies 20.0x 18.0x 16.0x 14.0x 12.0x 10.0x 10 0x 8.0x 6.0x 4.0x 2.0x 0.0x 0 0x EV/Revenue Multiple Distribution 2.7x 2.3x 17% 15% 14% 15% 10% 7% 5% 8% 5% 3% 3% 4% 0% 3Q12 4Q12 1Q13 2Q13 3Q13 <= 1.0x > 1.0x > 2.0x > 3.0x  > 4.0x > 5.0x > 6.0x > 7.0x > 8.0x >= 9.0x <= 2.0x <= 3.0x <= 4.0x <= 5.0x <= 6.0x <= 7.0x <= 8.0x <= 9.0x EV/Revenue • In 3Q13, the median EV/Revenue multiple of the SEG Internet Index ticked up slightly to 2.7x. • The EV/Revenue market multiples of public internet providers vary dramatically with the largest concentration at 2 0x or below (40% dramatically, 2.0x of our Internet Index). • However, a significant minority – mostly the headline grabbers – are valued highly by the public markets. 27% of public Internet companies closed 3Q13 with EV/Revenue multiples of 6.0x or higher. • Among the Internet companies boosting the highest EV/Revenue market multiples were a large number of relatively recent IPO’s that IPO s are capturing a significant share of online advertising dollars; Examples include LinkedIn (20.3x), Zillow (19.5x), Qihoo (18.3x), and Yelp (18.2x). 38 Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved
  40. 40. THE SEG INTERNET INDEX: MARKET MULTIPLES EV/Revenue Multiples vs. TTM Revenue Growth Rates 10.0x EV/Revenue Multiples vs. TTM EBITDA Margins 8.0x 9.1x 7.0x 8.0x Median E EV/Revenue Median E EV/Revenue 9.0x 7.0x 5.3x 6.0x 5.0x 4.0x 3.3x 3.0x 2.0x 7.5x 1.2x 1.7x 2.0x 6.0x 4.6x 5.0x 4.9x 4.0x 3.0x 2.7x 1.6x 2.0x 1.0x > 0% <= 10% > 10% <= 20% 1.0x 0.0x 0 0x 1.7x 0.0x 0 0x <= 0% > 0% <= 10% > 10% <= 20% > 20% <= 30% > 30% <= 40% <= 0% > 40% > 30% <= 40% > 40% TTM EBITDA  Margin TTM Revenue Growth • Public Internet company valuations are being driven by TTM p y g y revenue growth, with dramatic differences between new, rapidly growing social and ad-tech providers and their slower growing incumbent counterparts (e.g., Facebook vs. Yahoo). • Public Internet companies with TTM revenue growth of 40% or higher were rewarded with median EV/Revenue multiples markedly greater than their slower growing peers. 39 > 20% <= 30% • With few exceptions, and in stark contrast to SaaS companies, many of the most profitable public Internet companies also reported stellar TTM revenue growth. Among them were YY, Inc., Tree.com, Trulia, Youku, LinkedIn and Zillow. • Unlike The SEG SaaS Index where TTM EBITDA margins Index, bore little relationship to median EV/Revenue multiples, investors in public Internet companies kept a keen eye on margins, and rewarded strong performers with significantly higher market multiples. Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved
  41. 41. THE SEG INTERNET INDEX BY PRODUCT CATEGORY SEG Internet Index EV/Revenue Category EV/EBITDA TTM Revenue Growth EBITDA Margin 3Q12 4Q12 1Q13 2Q13 3Q13 3Q12 4Q12 1Q13 2Q13 3Q13 3Q12 4Q12 1Q13 2Q13 3Q13 3Q12 4Q12 1Q13 2Q13 3Q13 Ad Tech & Lead Generation 1.8x 2.2x 2.0x 2.5x 2.5x 13.3x 12.0x 14.9x 14.9x 22.1x 33.4% 31.9% 28.8% 26.8% 17.9% 12.5% 12.6% 12.9% 12.6% 11.3% Commerce 0.9x 1.2x 0.9x 0.9x 1.1x 14.9x 13.6x 10.5x 15.1x 15.6x 14.2% 15.1% 17.5% 17.7% 15.4% 8.4% 8.4% 7.6% 7.5% 6.7% Content & Media 1.3x 1.4x 1.6x 2.3x 2.7x 10.8x 10.9x 15.4x 13.8x 20.8x 12.3% 10.5% 12.6% 12.1% 14.1% 14.1% 14.1% 14.8% 15.5% 15.9% Gaming 2.1x 2 1x 2.4x 2 4x 2.7x 2 7x 2.7x 2 7x 2.8x 2 8x 3.4x 3 4x 4.3x 4 3x 5.8x 5 8x 5.9x 5 9x 7.7x 7 7x 32.0% 32 0% 24.8% 24 8% 21.9% 21 9% 21.9% 21 9% 19.8% 19 8% 43.4% 43 4% 38.6% 38 6% 36.3% 36 3% 38.6% 38 6% 35.4% 35 4% Infrastructure 1.1x 1.0x 1.7x 1.6x 1.4x 14.2x 10.4x 11.9x 13.6x 14.3x 11.8% 10.9% 9.2% 8.8% 1.7% 8.1% 7.5% 8.0% 7.2% 7.1% Services 3.1x 3.3x 3.5x 3.4x 4.3x 13.3x 15.1x 14.2x 19.7x 23.9x 46.7% 32.7% 41.8% 40.4% 38.1% 9.6% 9.4% 9.6% 7.1% 5.6% Social 12.1x 9.0x 9.3x 10.0x 14.0x 34.3x 39.6x 38.9x 37.1x 38.6x 57.3% 50.9% 49.3% 47.2% 41.4% 8.2% 12.9% 14.7% 16.8% 17.0% Travel 2.4x Median 2.7x 2.8x 3.4x 4.6x 13.5x 15.7x 16.2x 18.2x 21.2x 21.2% 20.2% 19.3% 20.0% 20.8% 21.9% 19.6% 18.1% 17.9% 16.8% 2.0x 2.2x 2.1x 2.3x 2.7x 13.5x 13.3x 13.6x 15.1x 18.4x 24.4% 21.0% 20.1% 19.3% 16.8% 12.5% 12.7% 12.9% 12.4% 11.8% The SEG Internet Index is segmented into eight product categories. Select companies within each Internet product category are included below. See the appendix for the complete list of companies within each product category. Ad Tech & Lead Gen Ad Tech & Lead Gen Infrastructure 40 Commerce Commerce Services Content & Media Content & Media Gaming Gaming Social Travel Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved
  42. 42. THE SEG INTERNET INDEX BY PRODUCT CATEGORY: FINANCIAL PERFORMANCE 3Q13 YoY Change in Revenue Growth 3Q13 TTM Revenue Growth 40%  20%  0%  45%  40%  40% 35%  30%  25%  20%  15%  10%  5%  0%  (20%) (40%) (60%) (80%) 3Q13 TTM EBITDA Margin Trav vel cial Soc Servic es Inf rastructu ure Gamin ng 3Q13 YoY Change EBITDA Margin Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved Travel Social Services Inf rastructure Gaming Co ontent & Media Commerce Travel Social Services I Inf rastructure Gaming Content & Media Commerce Ad Tech & Lead Generation Ad Tech & Le Generation ead 120%  100%  80%  60%  60% 40%  20%  0%  (20%) (40%) (60%) 40%  35%  30%  25%  20%  15%  10%  5%  0%  41 Content & Med dia Commer rce Ad Tech & Lead Generatio on Travel Social l Services s Inf rastructure e Gaming Content & Media Commerce Ad Tech & Lead Generation (100%)
  43. 43. THE SEG INTERNET INDEX BY PRODUCT CATEGORY: MARKET MULTIPLES 3Q13 Median EV/Revenue Multiples 3Q13 YoY Change in Median EV/Revenue Multiples 16.0x 14.0x Travel Social Services 0% Inf rastructure 0.0x Gaming 20% Content & Media 2.0x Commerce 40% Ad Tech & Lead Generation 4.0x Travel 60% Social 6.0x 60 Services 80% Inf rastructure 8.0x Gaming 100% Content & Media 10.0x Commerce 120% Ad Tech & Lead Generation 12.0x • Public Internet Companies comprising the social product category closed Q3 with the highest median EV/Revenue multiple among the eight Internet categories we track. The 14.0x median market valuation was 204% higher than the next closest product category, Travel (4.6x). • Social solutions Facebook, LinkedIn, Yelp, etc., continued to expand their online footprints, and investors rewarded them accordingly. Social Market Multiples also reflected significant YoY EBITDA margin improvement, as category members demonstrated a greater ability to monetize their large user bases with advertising, subscriptions, more mobile offerings and other value added services. • The Commerce product category lagged all other product categories, with a 1.1x EV/Revenue multiple, a tepid TTM revenue growth of 15.4%, and a lackluster 6.7% EBITDA margin. Amazon, one of the most notable commerce companies, is aggressively trying to diversify its content offerings and expand its hardware offerings as a way of differentiating from competitors and driving more spend through its platform. 42 Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved
  44. 44. SOFTWARE INDUSTRY M&A MARKET UPDATE 43 Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved
  45. 45. SOFTWARE/SaaS M&A DEAL VOLUME AND SPENDING U.S. Software Mergers & Acquisitions Activity $45.0 $13.1 $15.8 250 $12.6 $12.3 200 $9.5 $10 150 100 $5 50 0 $0 3Q10 *3Q13 Projected 4Q10 1Q11 2Q11 3Q11 4Q11 Deals 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 $35.0 $37 $31 $36 $39 $33 $36 $34 $37 $30.0 $25.0 $20.0 $15.0 $10.0 $5.0 $0.0 3Q1 13 $15 $15.8 $40.0 2Q1 13 N Number of Deals $12.7 $16.3 Value (BIllions) 300 $20 1Q1 13 $18.7 350 402 4Q1 12 389 $42 $41 $41 $42 3Q1 12 $17.9 416 406 $21.3 $21 3 $40 2Q1 12 435 1Q1 12 $23.4 $23.1 4Q1 11 432 3Q1 11 400 430 2Q1 11 426 1Q1 11 407 421 454 4Q1 10 450 $25 456 3Q1 10 454 ge Deal Value (Millio ons) TTM  Averag 500 Median On-Premise Software EV/Revenue Exit Multiples Value • Software M&A deal volume in Q3 hovered, once again, at 400 transactions, a level that’s historically consistent with an active M&A market. • Software M&A spending aggregated $16.3 billion in 3Q13, slightly lower than 2Q13’s $18.7 billion, but higher than the preceeding three calendar quarters. • There were nine mega deals (EV > $500M) in 3Q13 across all delivery models (On-premise/SaaS/Internet), one more than in the prior quarter, and a marked increase from 1Q13’s single large deal. Notable mega deals in the third quarter included: Vitera Healthcare Solutions acquisition of Greenway Medical Technologies ($632M EV, 4.7x EV/Revenue multiple); Vista Equity Partner’s acquisition of EV 4 7x Partner s The Active Network ($942M, 2.1x); Davis+Henderson’s acquisition of Harland Financial Solutions ($1.6B, 5.8x); Cisco’s acquisition of Sourcefire ($2.2B, 8.9x); and KKR’s acquisition of Mitchell International. • The average software M&A purchase price rose slightly in 3Q13 to $37M, after retreating the prior three quarters. 44 Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved
  46. 46. SOFTWARE M&A EXIT MULTIPLES Median Exit Multiples EV/Revenue 14.0x EV/EBITDA 12.7x 11.2x 11.8x 30.0% 11.6x 8.0x 6.0x 4.0x 2.0x 23.9% 25.0% 10.0x 2.3x 28.3% 11.5x % of Deals ‐ 3Q13 TTM 12.0x Median EV/Revenue Exit Multiple Distribution 1.8x 1.6x 2.3x 1.8x 19.6% 20.0% 16.3% 15.0% 12.0% 10.0% 5.0% 0.0% <= 1.0x 0.0x 3Q12 4Q12 1Q13 2Q13 > 1.0x      & <= 2.0x 20 > 2.0x      & <= 3.0x 30 > 3.0x      & <= 4.0x 40 > 4.0x TTM Revenue Exit Multiple Bins 3Q13 • 45 TTM revenue exit multiples closed 3Q13 at 2.3x, a marked increase over Q2’s 1.8x multiple and the highest since Q2 s 3Q12’s 2.3x multiple • On a TTM basis, 52% of all on-premise software targets were acquired for less than 2.0x TTM revenues in 3Q13. e e acqu ed o ess t a 0 e e ues 3Q 3 • Targets with 3.0x or higher exit multiples, primarily focused on high-growth software categories, such as big data, network infrastructure and security. • • Among the more noteworthy on-premise acquisitions in g y 3Q13: Cisco’s acquisition of Sourcefire ($2.2B, 8.9x rev.), a provider of next generation cyber security applications TTM EBITDA exit multiples remained relatively steady in 3Q13, closing at 11.5x. Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved
  47. 47. SOFTWARE M&A: BY OWNERSHIP STRUCTURE AND SIZE by Ownership Structure by Size Public Sellers 1.8x Median Multiple 33% 67% Private Sellers 2.0x Median Multiple Private Sellers 1.2x Median Multiple 37% 63% Public Sellers 2.4x Median Multiple • In Q3, as in quarters past, large (greater than $200 million in revenue), public buyers dug deeper. • Public buyers in 3Q13 paid a median 2.4x TTM revenue for their targets in 3Q13, compared to a median of 1.2x paid by private buyers. 46 • Public buyers with revenue greater than $200 million paid a median 2.7x TTM revenue for their targets in 3Q13, compared to only 1.5x paid by smaller public buyers. • Whether public or private, buyers with revenue greater than $200 million paid the highest multiples for a target with less than $20 million revenue over the past twelve months. Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved
  48. 48. SOFTWARE M&A: BY VERTICAL AND HORIZONTAL MARKETS Horizontal & Vertical M&A Median EV/Revenue Exit Multiples Horizontal & Vertical M&A Volume 100% 80% 60% 63% 58% 67% 64% 2.7x 2.2x 2.0x 40% 1.4x 37% 42% 33% 36% 4Q12 1Q13 2Q13 3Q13 1.3x 1.8x 1.9x 1.6x 2.0x 33% 3Q12 20% 3.0x 67% 0% Horizontal 3Q12 4Q12 Vertical 1Q13 Vertical 2Q13 3Q13 Horizontal • Horizontal software providers garnered the lion’s share of M&A transactions in 3Q13, as they have for the past five quarters. • TTM revenue exit multiples for horizontal software companies jumped from 1.6x in 2Q13 to 2.0x in 3Q13, after having fallen in each of the previous three quarters quarters. • Noteworthy horizontal deals in Q3 included Kofax’s acquisition of big data integration player Kapow Software for $47.5 million (3.0x revenue), and Cisco’ acquisition of cyber security software provider Sourcefire for $2.2 billion (8.9x revenue). • The median TTM revenue exit multiple for vertical software providers improved significantly over the past two quarters, closing 3Q13 at 2 7x 2.7x. • Select Q3 vertical deals included IRESS Limited’s acquisition of financial services software provider Avelo for $320.4 million (3.8x revenue); Sepura PLC’s acquisition of public systems command and control software provider Portalify for $9.3 million (7.0x revenue); and Yotta Limited’s acquisition of public sector software provider Mayrise for $9.1 million (3.1x revenue) 47 Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved
  49. 49. SOFTWARE M&A BY PRODUCT CATEGORY Billing & Service  Provisioning 0.3% Accounting & Finance 1.6% Retail 1.3% Utilities 0.9% Vert ticals Real Estate 2.2% Public Sector 1.9% Other Verticals 6.3% Content & Document  CRM, Marketing & Sales Data Mgmt & Integration 2.5% Mgmt 2.8% BI, Risk & Compliance 2.5% 5.3% Dev. Tools & IT Asset  eCommerce Mgmt 0.3% 2.2% Engineering, PLM & CAD 3.8% Middleware 0.3% ERP The Mobile product category accounted for 20.7% of all software M&A transactions in the third quarter, making it the most active M&A product category. p g y • Other active M&A categories in the third quarter included Healthcare (6.3%), Financial Services (5.3%) and Security (4.4%). • BI, Risk & Compliance accounted for 5.3% of deals in 3Q13, up from 2.5% in 2Q13, 2.3% in 1Q13 and 2.5% for all of 2012 • The heightened deal activity was largely attributable to big data needs and continued demand for advanced real time analytics (ie: Software AG’s acquisition of Jackbe, Adello Group’s acquisition of Hstreaming, Nice Systems’ acquisition of Causata, FoundationDB s FoundationDB’s acquisition of Akiban Technologies) 1.9% Entertainment 3.1% HR & Workforce Mgmt 1.9% Messaging, Conferencing &  Communications 3.4% Non‐Profit 0.9% Manufacturing 4.4% Insurance 0.6% Multimedia, Graphics &  Communications 2.2% Network Performance  Mgmt 1.6% 1 6% Healthcare 6.3% Financial Services 5.3% Security 4.4% Education 1.9% Automotive 1.3% 48 • Systems Mgmt 2.5% Mobile 20.7% Supply Chain Mgmt &  Logistics 3.4% Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved
  50. 50. SOFTWARE M&A BY PRODUCT CATEGORY Median EV/Revenue Exit Multiples by Software Product Category 3.0x 2.7x 2.4x 2.3x 2 3x 2.2x 2 2x 1.8x 1.8x 1.5x Financial Services Education Supply Chain Mgm & Logistics mt M Manufacturing O Other Verticals BI, Risk & Compliance Healthcare Security Data Mgmt & Integration 1.2x • Among the 32 on-premise software product categories we track, nine had both sufficient deal activity and deal data to ascertain a TTM revenue multiple in 3Q13 3Q13. • Among the nine product categories, Data Mgmt. & Integration garnered the highest median TTM revenue multiple (3.0x) in Q3. Buyers in this product category are paying up for best-of-breed solutions that can improve analysis and management of big data. Examples include Informatica’s 4Q12 acquisition of Heiler Software ($85 million, 3.7x revenue), and Kofax’s 3Q13 acquisition of Kapow Software ($48 million, 3.0x revenue) • The Security software category posted a strong 2.7x median EV/Revenue exit multiple in 3Q13. Select security deals included Cisco’s acquisition of Sourcefire in Q3 ($2.2 billion, 8.9x revenue); Tyco’s 2Q13’s acquisition of Exacq Technologies ($150 million, 2.7x revenue); and McAfee’s acquisition of Stonesoft ($375 million, 7.0x revenue) in 2Q13. 49 Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved
  51. 51. SaaS M&A: DEAL VOLUME AND EXIT MULTIPLES SaaS M&A Volume   SaaS as % of Software # of SaaS M M&A Deals 120 30% 94 94 100 80 68 65 60 40 39 39 26 45 48 104 86 97 25% 20% 59 15% 10% 20 5% 0 SaaS M&A Deal ls as a % of Total  Software M M&A Deals SaaS M&A Deals Median SaaS EV/Revenue Exit Multiples 4.6x 4.1x 3.9x 3Q12 4Q12 4.0x 4.0x 1Q13 2Q13 3Q13 0% • There were 97 SaaS M&A transactions in 3Q13 Year to date there have been 287 SaaS M&A transactions, suggesting 2013’s 3Q13. date, transactions 2013 s year end tally should far outpace 2012’s record breaking total of 311 and SEG’s 2013 projection of 344 by some 40 deals. • The median TTM EV/Revenue exit multiple of SaaS transactions rose sharply in 3Q13 after holding steady over the past year. The surge was partly due to a number of lower multiple transactions in 3Q12 falling out of the TTM analysis. • The median SaaS exit multiple was 100% greater than the median on-premise exit multiple in 3Q13 (4.6x vs 2.3x). on premise 50 Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved
  52. 52. SaaS M&A BY PRODUCT CATEGORY Accounting & Finance 4% Billing & Service  Provisioning 1% BI, Risk & Compliance 3% Content & Document  Mgmt 4% CRM, Marketing & Sales 13% • CRM, Marketing & Sales was the most active SaaS product category, accounting for 13.0% of all M&A transactions in the third quarter quarter. • 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. • After two years of comprising almost 20% of all SaaS transactions, the HR & Workforce Mgmt product category had its third consecutive lackluster quarter, claiming only 2% of SaaS transactions in 3Q13. After a three-year period of consolidation by the large HR software providers, providers the M&A window for many smaller HR SaaS providers is rapidly closing. • The Systems Management (7%) and Supply Chain (6%) product categories also showed strength in 3Q13. Both categories are benefiting from wider adoption of SaaS deployed solutions, which should persist a while longer, as large public legacy vendors continue to play catch-up. Retail 4% Real Estate 4% Data Mgmt & Integration 1% Other Verticals 5% Dev. Tools & IT Asset  Mgmt 1% V Verticals Manufacturing M f t i 2% eCommerce 3% Insurance 1% Engineering, PLM & CAD 3% Healthcare 7% ERP 4% Financial Services 2% HR & Workforce Mgmt 2% Education Ed ti 3% Messaging, Conferencing &  Communications 3% Multimedia, Graphics &  Communications 6% Automotive 7% Supply Chain Mgmt &  S l Ch i M t & Logistics 6% 51 Systems Mgmt S 7% Security 1% Network Performance  Mgmt 1% Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved
  53. 53. 3Q13 SaaS M&A TRANSACTIONS Date 09/27/2013 09/24/2013 09/23/2013 09/20/2013 09/20/2013 09/20/2013 09/20/2013 09/19/2013 09/18/2013 09/17/2013 09/17/2013 09/16/2013 09/16/2013 09/16/2013 09/16/2013 09/16/2013 09/12/2013 09/10/2013 09/10/2013 09/09/2013 09/09/2013 09/09/2013 09/09/2013 09/06/2013 09/05/2013 09/05/2013 09/05/2013 09/05/2013 09/04/2013 09/03/2013 09/03/2013 09/03/2013 09/03/2013 08/30/2013 08/30/2013 Buyer Seller Columbus A/S (CPSE:COLUM) Softw are Paradigms International, Inc. Vitera Healthcare Solutions, LLC AmeriCommerce, L.P. Sucuri Inc Inc. Xchanging Inc. Blue-Grace Logistics LLC Mindshare Technologies, Inc. Amber Road, Inc. BasWare Oyj (HLSE:BAS1V) Solera Holdings Inc (NYSE:SLH) Inc. Stratatel Ltd. (ASX:STE) Scivantage, Inc. Wow zaTV LLC eFolder, Inc. PCSYS A/S Plan.Net Plan Net Campaign Hamburg GmbH & Co KG Co. PTC Inc. (NasdaqGS:PMTC) Origo Netw orks, Inc. Wolters Kluw er Corporate Legal Services Desire2Learn Incorporated ERP Guru, Inc. Confluence Technologies Inc Technologies, Inc. Enghouse Systems Limited (TSX:ESL) Summit Garnishee Solutions (Pty) Limited Charles Taylor plc (LSE:CTR) JAK, Ltd. FactSet Research Systems Inc. (NYSE:FDS) Answ ers Corporation To The New Eventbrite, Inc. Arbor Netw orks, Inc. Cultura Technologies Inc. Digium, Inc. SciQuest, Inc SciQuest Inc. (NasdaqGS:SQI) Columbus Norw ay AS Shiloh Technologies, LLC Greenw ay Medical Technologies, Inc. Americart LLC Unmask Parasites MarketMaker4* U.S. Transportation Consultants, Inc. Empathica, Inc. EasyCargo Inc. BravoSolution SpA Servicios Informaticos Serinfo S.A SA JCurve Solutions Pty Ltd Portfolio Director, Inc. Camfoo GmbH Anchor Box LLC IBS Systems A/S Webfact GmbH NetIDEAS, Inc. Standing Cloud, Inc. CitizenHaw k, Inc. Know illage, Inc. EnabledSuccess Inc. Data Agent LLC Safeharbor Know ledge Solutions Business Connexion Group, Q LINK Charles Taylor Know ledgeCenter LabMentors Corp. Revere Data LLC Easy2 Technologies Inc Technologies, Inc. ThoughtBuzz Pte Ltd South Interactive S.A. Packetloop Pty Limited E-Markets, Inc. Digium Cloud Services, LLC CombineNet, Inc CombineNet Inc. *Revenue estimate 52 Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved Enterprise Value (m m ) TTM Rev. Rev (m m ) EV/Rev $632.4 $22.0 $4.4 $18.4 $11.1 $0.2 $15.4 $3.9 $43.1 $43 1 $134.8 $5.5 $4.2 $12.0 $12 0 4.7x 4.0x 2.6x 3.6x 3 6x
  54. 54. 3Q13 SaaS M&A TRANSACTIONS (CON’T) Date 08/28/2013 08/28/2013 08/27/2013 08/26/2013 08/23/2013 08/19/2013 08/19/2013 08/19/2013 08/18/2013 08/16/2013 08/16/2013 08/15/2013 08/15/2013 08/12/2013 08/10/2013 08/08/2013 08/08/2013 08/07/2013 08/07/2013 08/07/2013 08/06/2013 08/06/2013 08/06/2013 08/06/2013 08/02/2013 08/01/2013 07/31/2013 07/31/2013 07/31/2013 07/31/2013 07/31/2013 07/28/2013 07/24/2013 07/24/2013 07/24/2013 53 Buyer Seller McKinsey & Company, Inc. Fax87.com Authenticom, Inc. Vista Equity Partners Verisae, Inc. The Reynolds and Reynolds Company Altisource Portfolio Solutions S.A. (NasdaqGS:ASPS) Darw in Strategic Limited, Investment Arm Open Text Corporation (NasdaqGS:OTEX) Welsh, Carson, Welsh Carson Anderson & Stow e LookSmart, Ltd. (NasdaqCM:LOOK) International Business Machines Corporation (NYSE:IBM) Xtari, LLC Transport I.T. Solutions Private Limited McGregor BFA (Pty) Ltd. Proofpoint, Inc Proofpoint Inc. (NasdaqGM:PFPT) LexisNexis Risk Solutions, Inc. ALL-STATE International, Inc. MicroD, Inc. Intuit Inc. (NasdaqGS:INTU) Market Track, LLC 3D Systems Corp (NYSE:DDD) Corp. Interactive Leisure Systems, Inc. (OTCPK:IALS) Angie's List, Inc. (NasdaqGM:ANGI) HgCapital; HgCapital Trust plc (LSE:HGT) Kaplan, Inc. HealthTech Solutions Group LLC Group, Guar Global Limited (OTCPK:GGBL) Virtual Atmosphere Ltd. Cloud Bees, Inc. HotelPlanner.com LightSpeed Retail Inc Inc. Lixto Softw are GmbH eQtickets (Pty) Ltd Wired Fax, Inc. RyanTech, Inc., Auto.Tech. Portfolio Omnitracs, Inc Omnitracs Inc. FM Solutions LLC iMakeNew s, Inc. Equator, LLC FTG Finance Services Limited Cordys B.V. Alert Logic Inc Logic, Inc. Syncapse Corp., Key Assets Trusteer, Inc. RhinoSEO Four Soft USA, Inc. I-Net Bridge (Pty) Ltd. Armorize Technologies Inc. Inc WorldCompliance, Inc. Vizibility Inc. Internet Databases Corporation GoodApril, Inc. Dynamite Data LLC VisPow er Technology Inc Technology, Inc. Travel Time Technologies, Inc. SmartHabitat, Inc. Tracer Management Systems Ltd. e-conomic international a/s Grockit Inc., Test Prep Assets Gaffey and Associates, Inc. Associates Inc Primal Parking Ltd Guar Global Ltd. YCD Atmosphere FoxWeave Meetings.com MerchantOS Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved Enterprise Value (m m ) TTM Rev. Rev (m m ) EV/Rev $0.5 $800.0 $800 0 $150.0 $33.0 $3.0 $0.3 $12.7 $25.0 $25 0 $20.0 $2.7 $120.6 $2.8 - - -
  55. 55. 3Q13 SaaS M&A TRANSACTIONS (CON’T) Date 07/23/2013 07/23/2013 07/19/2013 07/18/2013 07/17/2013 07/16/2013 07/15/2013 07/15/2013 07/12/2013 07/11/2013 07/11/2013 07/10/2013 07/10/2013 07/10/2013 07/09/2013 07/09/2013 07/08/2013 07/07/2013 07/04/2013 07/03/2013 07/03/2013 07/02/2013 07/02/2013 07/01/2013 07/01/2013 07/01/2013 07/01/2013 54 Buyer Seller To The New Aimia Inc. (TSX:AIM) Proofpoint, Inc. (NasdaqGM:PFPT) Ipreo Holdings LLC Cineplex Inc. (TSX:CGX) Concur Technologies, Inc. (NasdaqGS:CNQR) Intuit Singapore Pte. Limited Pin Payments Panasonic Europe Ltd. Imprezzio Inc Inc. EMC Corporation (NYSE:EMC) Boost Holding AG Garantia Data Ltd. Tom's Planner N.V. Idera, Inc. Idera Inc Bandzoogle Inc. PropertyIQ NZ Ltd All for One Steeb AG (XTRA:A1OS) Scottish Equity Partners LLP; Investec plc (LSE:INVP) Yardi Systems, Inc. ABS Capital Partners; Persimmon Capital Partners Thistle Insurance Services Limited ServiceNow , Inc. (NYSE:NOW) ClearSlide, Inc. Thoma Bravo, LLC Mentorix ApS Techsailor Group Pte Ltd. Smart Button Associates, Inc. Abaca Technology Corporation Discovery Data Cineplex Digital Netw orks GDSX, Ltd. Fifo Pty Ltd Spreedly, Inc., US Tech. Assets Cameramanager B.V. Racing Snail Inc Snail, Inc. Scaleio, Inc. Xsmart AG MyRedis SaaSMAX Corp. Gantto Inc. CopperEgg Corporation Onesheet, LLC Terralink International Limited WEBMAXX GmbH Purepromoter Limited Pierce-Eislen, Inc. IgnitionOne, Inc. IgnitionOne Inc Risk Management Support Ltd. Mirror42 B.V. Crunched Digital Insight Corporation Scoll Methods Ltd., Training Division Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved Enterprise Value (m m ) TTM Rev. (m m ) $18.0 $2.5 $112.3 $0.0 $1,025.0 - $24.9 - EV/Rev 4.5x 3.4x -
  56. 56. INTERNET M&A: DEAL VOLUME AND EXIT MULTIPLES Internet M&A Volume Median Internet EV/Revenue Exit Multiples 263 231 222 Numbe of Deals er 185 204 1.9x 3Q12 4Q12 1Q13 2Q13 3Q13 1.9x 1.9x 1.9x 3Q12 4Q12 1Q13 2Q13 1.9x 3Q13 • In 3Q13, there were 231 Internet M&A transactions, the second consecutive quarter of marked improvement over 1Q13, but still well below 2012 deal levels. • Internet M&A remained highly volatile, in large part due to shifting marketing strategies, evolving business models, and constant changes in the competitive landscape. • In early 2012, a large number of Internet targets exited amidst the hype of the pending Facebook IPO (5/2012), creating a spike in i M&A volume. Aft th F l After the Facebook IPO d b l I t b k debacle, Internet i t investors and b t d buyers alike b lik became more cautious and circumspect, ti d i t and M&A volume declined markedly, plunging to 185 transactions in 1Q13, down from 273 transactions in 2Q12. • Internet median TTM EV/Revenue exit multiples have held steady, finishing 3Q13 at 1.9x. This is an M&A world of haves and have nots, with wide disparities in exit multiples. 55 Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved
  57. 57. INTERNET M&A: BY PRODUCT CATEGORY TTM M&A Volume by Product Category M&A Volume by Quarter 8.2% Ad‐Tech & Lead Gen 16.9% 36.8% Commerce Content & Media Gaming 3.5% Category Ad-Tech & Lead Gen Commerce Content & Media Gaming Infrastructure I f t t Social Tech Total 3Q 2012 4Q 2012 1Q 2013 2Q 2013 3Q 2013 85 57 58 60 85 40 41 34 39 44 52 55 42 34 36 13 12 7 11 8 41 27 24 41 39 32 30 20 19 19 263 222 185 204 231 Infrastructure Social Tech 15.6% 19.0% • Internet ad-tech continued to remain to most active internet M&A category in 3Q13 accounting for over 1/3 of all sector 3Q13, transactions • Following a wave of social technology deals in 2011/2012, social tech acquisition activity has significantly tapered off, closing each of the last two quarters at 19 acquisitions. • After a respectable 2Q12 showing with 25 M&A transactions, the Internet Gaming M&A has been largely dormant over the past four quarters, averaging less than ten transactions per quarter. The product category has been decimated by the emergence of mobile gaming, (ie. Zynga’s recent public stock market performance). 56 Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved
  58. 58. APPENDIX 57 Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved
  59. 59. THE SEG SOFTWARE INDEX COMPANIES Company C Ticker Ti k Amdocs Limited AsiaInfo Holdings, Inc. CSG Systems International, Inc. Evolving Systems, Inc. MIND C T I Ltd C.T.I. Ltd. NeuStar, Inc Redknee Solutions Synchronoss Technologies, Inc. Actuate Corporation MicroStrategy Incorporated Pegasystems Inc Inc. Progress Software Corporation PROS Holdings Qlik Technologies Teradata Verisk Actuate Corporation p Adobe Systems Incorporated BSQUARE Corporation Compuware Corporation Magic Software Enterprises Ltd. Microsoft Corporation Oracle Corporation Progress Software Corporation Red Hat, Inc. Software AG ANSYS, Inc. Autodesk, Inc. Cadence Design Systems, Inc Cimatron Ltd Ltd. Dassault Systèmes GSE Systems Inc. Mentor Graphics Corp Parametric Technology Corporation PDF Solutions Inc Stratasys, Inc. Stratasys Inc Synopsys Inc 58 DOX ASIA CSGS EVOL MNDO NSR TSX:RKN SNCR BIRT MSTR PEGA PRGS PRO QLIK NYSE:TDC VRSK BIRT ADBE BSQR CPWR MGIC MSFT ORCL PRGS RHT XTRA:SOW ANSS ADSK CDNS CIMT DSY GVP MENT PMTC PDFS SSYS SNPS Product Category P d tC t Billing & Service Management Billing & Service Management Billing & Service Management Billing & Service Management Billing & Service Management Billing & Service Management Billing & Service Management Billing & Service Management Business Intelligence Business Intelligence Business Intelligence Business Intelligence Business Intelligence Business Intelligence Business Intelligence Business Intelligence Development Platforms p Development Platforms Development Platforms Development Platforms Development Platforms Development Platforms Development Platforms Development Platforms Development Platforms Development Platforms Engineering & PLM Engineering & PLM Engineering & PLM Engineering & PLM Engineering & PLM Engineering & PLM Engineering & PLM Engineering & PLM Engineering & PLM Engineering & PLM Engineering & PLM Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved
  60. 60. THE SEG SOFTWARE INDEX COMPANIES (CON’T) Company C Ticker Ti k American Software, Inc. Oracle Corporation QAD Inc. Sage Group plc SAP AG Unit 4 ACI Worldwide, Inc. Bottomline Technologies DST Systems, Inc. Evertec Fair Isaac Corporation Fiserv Intuit Inc Model N, Inc NetSol Technologies Inc. Sage Group plc Qiwi plc Activision Blizzard Electronic Arts Inc. GameLoft SA Konami Corporation Take-Two Interactive Ubisoft Entertainment Accretive Health Allscripts Healthcare Solutions Inc. Cerner Corporation Computer Programs and Sys, Inc. Greenway Medical Technologies, Inc MedAssets Merge Healthcare Omnicell, Inc. Quality Systems, Inc. Hewlett Packard IBM Microsoft Corporation Oracle Corporation SAP AG 59 AMSW.A ORCL QADA LSE:SGE SAP ENXTAM:U ACIW EPAY DST EVTC FICO FISV INTU MODN KASE:NET LSE:SGE QIWI ATVI EA ENXTPA:G TSE: 9766 TTWO ENXTPA:U AH MDRX CERN CPSI GWAY MDAS MRGE OMCL QSII HPQ IBM MSFT ORCL SAP Product Category P d tC t Enterprise Resource Planning Enterprise Resource Planning Enterprise Resource Planning Enterprise Resource Planning Enterprise Resource Planning E t i R Pl i Enterprise Resource Planning Financial & Accounting Financial & Accounting Financial & Accounting Financial & Accounting Financial & Accounting Financial & Accounting Financial & Accounting Financial & Accounting Financial & Accounting Financial & Accounting Financial & Accounting Gaming Gaming Gaming Gaming Gaming g Gaming Healthcare Healthcare Healthcare Healthcare Healthcare Healthcare Healthcare Healthcare Healthcare IT Conglomerates IT Conglomerates IT Conglomerates IT Conglomerates IT Conglomerates Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved
  61. 61. THE SEG SOFTWARE INDEX COMPANIES (CON’T) Company C Ticker Ti k Bango PLC Glu Mobile, Inc. Gree Millennial Media Inc Myriad Group AG M i dG NQ Mobile Inc. Opera Qihoo 360 Technology Co. Ltd Pandora Media Synchronoss Technologies, Inc. Tangoe, Inc. TeleCommunication Systems TeleNav Velti Plc Zynga, Inc Allot Communications Ltd. Aruba Networks, Inc. Brocade Communications Systems, Cisco Systems, Inc. Compuware Corporation Cyan, Inc. F5 Networks, Inc. Gigamon, LLC Juniper Networks, Inc Networks Inc. Radware Ltd. Riverbed Technology, Inc. AVG Technologies N.V. Check Point Software Tech Ltd. Commtouch Software Ltd. Fortinet Inc. Guidance Software, Inc. Imperva Palo Alto Networks, Inc Proofpoint, Inc. Sourcefire, Inc. Symantec Corporation Trend Micro VASCO Data Security International 60 BGO GLUU TSE:3632 MM MYRN NQ OB:OPERA QIHU P SNCR TNGO TSYS TNAV VELT ZNGA ALLT ARUN BRCD CSCO CPWR CYNI FFIV GIMO JNPR RDWR RVBD AVG CHKP CTCH FTNT GUID IMPV PANW PFPT FIRE SYMC TSE:4704 VDSI Product Category P d tC t Mobile Solutions/Content Mobile Solutions/Content Mobile Solutions/Content Mobile Solutions/Content Mobile Solutions/Content M bil S l ti /C t t Mobile Solutions/Content Mobile Solutions/Content Mobile Solutions/Content Mobile Solutions/Content Mobile Solutions/Content Mobile Solutions/Content Mobile Solutions/Content Mobile Solutions/Content Mobile Solutions/Content Mobile Solutions/Content Networking & Network Performance Networking & Network Performance Networking & Network Performance Networking & Network Performance Networking & Network Performance Networking & Network Performance Networking & Network Performance Networking & Network Performance Networking & Network Performance Networking & Network Performance Networking & Network Performance Security Security Security Security Security Security Security Security Security Security Secuity Security Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved
  62. 62. THE SEG SOFTWARE INDEX COMPANIES (CON’T) Company C Ticker Ti k Brocade Communications Systems, CA, Inc. Cisco Systems, Inc. CommVault Systems, Inc. EMC FalconStor Software, Inc. IBM Informatica Corporation Microsoft Corporation NetApp, Inc. Oracle Corporation Splunk, Inc. Splunk Inc TIBCO Software Inc. American Software, Inc. Aspen Technology, Inc. Manhattan Associates, Inc. The Descartes Systems Group Inc. Unit 4 CA T h Technologies l i Citrix Systems, Inc. Netscout Systems, Inc. Red Hat, Inc. SolarWinds, Inc. VMWare, Inc. Advent Software, Inc. Broadridge Financial Fidessa Jack Henry & Associates, Inc. MSCI, Inc. SS&C Corporation Blackbaud, Inc. Constellation EPIQ Systems, Inc. Guidewire Software, Inc. Micros Systems PROS Holdings Sapiens International Silver Spring Networks, Inc. The Active Network Inc Network, Inc. Tyler Technologies, Inc. 61 BRCD CA CSCO CVLT EMC FALC IBM INFA MSFT NTAP ORCL SPLK TIBX AMSW.A AZPN MANH TSX:DSG ENXTAM:U CA CTXS NTCT RHT SWI VMW ADVS BR LSE:FDSA JKHY MSCI SSNC BLKB TSX:CSU EPIQ GWRE MCRS PRO SPNS SSNI ACTV TYL Product Category P d tC t Storage, Data Management & Integration Storage, Data Management & Integration Storage, Data Management & Integration Storage, Data Management & Integration Storage, Data Management & Integration Storage, Data Management & Integration Storage, Data Management & Integration Storage, Data Management & Integration Storage, Data Management & Integration Storage, Data Management & Integration Storage, Data Management & Integration Storage, Storage Data Management & Integration Storage, Data Management & Integration Supply Chain Management & Logistics Supply Chain Management & Logistics Supply Chain Management & Logistics Supply Chain Management & Logistics Supply Chain Management & Logistics Systems Management S t M t Systems Management Systems Management Systems Management Systems Management Systems Management Vertical - Finance Vertical - Finance Vertical - Finance Vertical - Finance Vertical - Finance Vertical - Finance Vertical - Other Vertical - Other Vertical - Other Vertical - Other Vertical - Other Vertical - Other Vertical - Other Vertical - Other Vertical - Other Vertical - Other Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved
  63. 63. THE SEG SaaS INDEX COMPANIES Company C Ticker Ti k Bazaarvoice, Inc Constant Contact Cvent LivePerson Marketo Marin Software Responsys Salesforce.com Vocus E2open, Inc Fleetmatics Netsuite SciQuest SPS Commerce Workday, Inc. Athenahealth, Inc DealerTrack Ebix Inc. Ellie Mae Medidata Solutions RealPage Textura Corp. Callidus Software Inc. Cornerstone OnDemand Halogen Software, Inc. The Ultimate Software Group, Inc. Workday, Inc. Benefitfocus, Inc. ChannelAdvisors Concur Demandware, Inc. FireEye, Inc. inContact, Inc. IntraLinks Holdings I t Li k H ldi J2 Global Jive Software, Inc OpenTable, Inc. Qualys, Inc. Service-now.com Tableau Software Tangoe T Zix Corporation 62 BV CTCT NYSE:CVT LPSN MKTO MRIN MKTG CRM VOCS EOPN FLTX N SQI SPSC WDAY ATHN TRAK EBIX ELLI MDSO RP TXTR CALD CSOD TSX:HGN ULTI WDAY BNFT ECOM CNQR DWRE FEYE SAAS IL JCOM JIVE OPEN QLYS NOW DATA TNGO ZIXI Product Category P d tC t CRM & Marketing CRM & Marketing CRM & Marketing CRM & Marketing g CRM & Marketing CRM & Marketing CRM & Marketing CRM & Marketing CRM & Marketing ERP & Supply Chain ERP & Supply Chain ERP & Supply Chain ERP & Supply Chain ERP & Supply Chain ERP & Supply Chain Vertically Focused Vertically Focused Vertically Focused Vertically Focused Vertically Focused Vertically Focused Vertically Focused Workforce Management Workforce Management Workforce Management Workforce Management Workforce Management Other SaaS Other SaaS Other SaaS Other SaaS Other SaaS Other SaaS Other SaaS Oth S S Other SaaS Other SaaS Other SaaS Other SaaS Other SaaS Other SaaS Other SaaS Oth S S Other SaaS Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved
  64. 64. THE SEG INTERNET INDEX COMPANIES Company C Ticker Ti k Angie's List, Inc. Baidu.com, Inc. Bankrate, Inc. Digital Generation, Inc. eHealth, Inc. Google Inc. Groupon InterActiveCorp LinkedIn Marchex Inc. QuinStreet ReachLocal, Inc. Rocket Fuel SINA Corporation Sohu.com Inc. Tree.Com, Inc. Tree Com Inc Tremor Video, Inc. ValueClick, Inc. Yandex YuMe, Inc. 1-800-FLOWERS.COM, Inc. Amazon.com, Inc. A I Bitauto Holdings Limited BlueNile DangDang Digital River Inc. eBay Inc. y GeekNet Liquidity Services, Inc. Mecox Lane Limited Mercadolibre, Inc. Overstock.com, Inc. PetMed Express Inc Express, Inc. Stamps.com 63 ANGI BIDU RATE DGIT EHTH GOOG GRPN IACI LNKD MCHX QNST RLOC FUEL SINA SOHU TREE TRMR VCLK YNDX YUME FLWS AMZN BITA NILE DANG DRIV EBAY GKNT LQDT MCOX MELI OSTK PETS STMP Product Category P d tC t Ad Tech & Lead Ad Tech & Lead Ad Tech & Lead Ad Tech & Lead Ad Tech & Lead Ad Tech & Lead Ad Tech & Lead Ad Tech & Lead Ad Tech & Lead Ad Tech & Lead Ad Tech & Lead Ad Tech & Lead Ad Tech & Lead Ad Tech & Lead Ad Tech & Lead Ad Tech & Lead Ad Tech & Lead Ad Tech & Lead Ad Tech & Lead Ad Tech & Lead Commerce Commerce C Commerce Commerce Commerce Commerce Commerce Commerce Commerce Commerce Commerce Commerce Commerce Commerce Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved Generation Generation Generation Generation Generation Generation Generation Generation Generation Generation Generation Generation Generation Generation Generation Generation Generation Generation Generation Generation
  65. 65. THE SEG INTERNET INDEX COMPANIES (CON’T) Company C Ticker Ti k AOL, Inc. DemandMedia InterActiveCorp Netflix Pandora P d Shutterstock, Inc. TheStreet.com, Inc. WebMD Health Corp. XO Group Yahoo! Inc. Youku ChangYou.com Giant Interactive Netease NCSoft Perfect World Sohu.com Inc. Tencent Holdings Zynga, Inc. 8x8, Inc. Akamai Technologies, Inc. Brightcove Inc. BroadSoft, Inc. Digital River Inc. Envivio, Inc. Harmonic Inc Interactive Intelligence, Inc. Limelight Networks, Inc. Mitel Networks Corp. Polycom, I P l Inc. Rovi Corporation SeaChange International Inc. ShoreTel, Inc. Sonus Networks, Inc Synacor, Inc Tucows Inc Inc. VeriSign 64 AOL DMD IACI NFLX P SSTK TST WBMD XOXO YHOO YOKU CYOU GA NTES KOSE:A036 PWRD SOHU SEHK:700 ZNGA EGHT AKAM BCOV BSFT DRIV ENVI HLIT ININ LLNW MITL PLCM ROVI SEAC SHOR SONS SYNC TCX VRSN Product Category P d tC t Content & Media Content & Media Content & Media Content & Media Content C t t & Media M di Content & Media Content & Media Content & Media Content & Media Content & Media Content & Media Gaming Gaming Gaming Gaming Gaming g Gaming Gaming Gaming Infrastructure Infrastructure Infrastructure Infrastructure Infrastructure Infrastructure Infrastructure Infrastructure Infrastructure Infrastructure Infrastructure I f t t Infrastructure Infrastructure Infrastructure Infrastructure Infrastructure Infrastructure Infrastructure Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved
  66. 66. THE SEG INTERNET INDEX COMPANIES (CON’T) Company C Angie's List, Inc. Bankrate, Inc. Carbonite, Inc. LifeLock, Inc. Monster Worldwide, Inc. Qihoo Shutterfly SouFun Holdings Ltd. Tree.Com, Inc. Trulia, Inc. VistaPrint Xoom Zillow Facebook LinkedIn Mail.ru Mail ru Group Renren Inc Yelp, Inc. YY, Inc. Ctrip Expedia HomeAway H A MakeMyTrip Orbitz Priceline Travelzoo TripAdvisor Inc 65 Ticker Ti k ANGI RATE CARB LOCK MWW QIHU SFLY SFUN TREE TRLA VPRT XOOM Z FB LNKD LSE:MAIL RENN YELP YY CTRP EXPE AWAY MMYT OWW PCLN TZOO TRIP Product Category P d tC t Services Services Services Services Services Services Services Services Services Services Services Services Services Social Social Social Social Social Social Travel Travel Travel T l Travel Travel Travel Travel Travel Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved
  67. 67. THE SEG SOFTWARE INDEX COMPANIES – KEY METRICS SEG Software Index Company EV/Revenue EV/EBITDA TTM Revenue Growth EBITDA Margin 3Q12 4Q12 1Q13 2Q13 3Q13 3Q12 4Q12 1Q13 2Q13 3Q13 3Q12 4Q12 1Q13 2Q13 3Q13 3Q12 4Q12 1Q13 2Q13 Accretive Health 0.9x 1.0x 1.0x 0.9x 0.8x 19.9x 32.8x 33.3x 29.5x 26.5x 43.5% 32.2% 32.2% 32.2% 32.2% 4.6% 2.9% 2.9% 2.9% 3Q13 2.9% ACI Worldwide, Inc. 3.7x 3.4x 3.2x 3.4x 3.3x 18.0x 17.2x 13.8x 16.1x 15.2x 17.2% 22.5% 43.3% 38.7% 39.7% 20.4% 19.7% 23.6% 21.1% 21.9% Activision Blizzard 2.2x 2.0x 2.3x 2.4x 2.9x 9.1x 8.0x 7.1x 7.1x 7.7x -7.6% -5.9% 2.1% 11.8% 13.1% 24.6% 25.5% 32.4% 33.3% 37.6% Actuate Corporation 1.8x 1.4x 1.6x 1.7x 2.0x 8.2x 7.0x 9.2x 11.5x 16.0x 1.6% 5.0% 2.9% 0.9% -1.9% 22.4% 19.7% 17.2% 14.9% 12.6% Adobe Systems Incorporated 3.3x 3.4x 3.9x 4.7x 5.1x 9.5x 10.0x 13.3x 17.7x 22.1x 8.1% 4.4% 3.1% -1.9% -5.3% 34.2% 33.5% 29.7% 26.6% 23.3% Advent Software, Inc. Software Inc 3.3x 3 3x 2.9x 2 9x 3.5x 3 5x 4.1x 4 1x 3.7x 3 7x 17.0x 17 0x 14.5x 14 5x 16.3x 16 3x 17.9x 17 9x 19.0x 19 0x 14.7% 14 7% 11.9% 11 9% 10.0% 10 0% 7.9% 7 9% 6.7% 6 7% 19.6% 19 6% 19.9% 19 9% 21.2% 21 2% 22.7% 22 7% 19.3% 19 3% Allot Communications Ltd. 7.1x 5.4x 2.8x 2.4x 2.9x 44.2x 35.1x 22.8x 32.3x 336.0x 39.4% 39.6% 34.7% 23.4% 7.2% 16.2% 15.5% 12.3% 7.5% 0.9% Allscripts Healthcare Solutions Inc. 1.5x 1.7x 1.6x 1.9x 2.2x 9.3x 10.9x 18.4x 26.3x 40.2x 19.9% 9.0% 0.2% -3.0% -5.6% 15.9% 15.3% 8.6% 7.4% 5.6% 18.7% Amdocs Limited 1.4x 1.4x 1.5x 1.5x 1.5x 7.4x 7.5x 8.0x 7.8x 8.1x 3.5% 2.2% 1.8% 1.9% 2.6% 18.4% 18.5% 18.5% 18.6% American Software, Inc. 1.6x 1.5x 1.7x 1.7x 1.7x 9.2x 9.0x 10.6x 11.4x 12.2x 16.2% 11.2% 3.3% -2.1% -6.6% 17.1% 16.6% 16.0% 15.3% 14.3% ANSYS, Inc. 7.6x 7.5x 8.2x 7.9x 8.7x 16.1x 15.8x 17.2x 16.8x 18.6x 19.9% 17.5% 15.4% 12.8% 10.5% 47.3% 47.5% 47.6% 47.1% 46.7% Aruba Networks, Inc. 3.0x 3.5x 4.0x 2.7x 2.6x 52.3x 55.4x 55.6x 43.8x 61.0x 30.3% 25.2% 22.8% 19.3% 16.1% 5.8% 6.3% 7.1% 6.1% 4.3% AsiaInfo Holdings Inc Holdings, Inc. 1.2x 1 2x 1.0x 1 0x 1.0x 1 0x 1.0x 1 0x 0.9x 0 9x 7.5x 7 5x 7.7x 7 7x 7.9x 7 9x 8.2x 8 2x 8.1x 8 1x 9.8% 9 8% 10.5% 10 5% 13.9% 13 9% 15.7% 15 7% 16.2% 16 2% 16.0% 16 0% 13.0% 13 0% 12.2% 12 2% 11.7% 11 7% 11.5% 11 5% 19.2% Aspen Technology, Inc. 8.4x 8.6x 9.7x 9.1x 9.4x - 173.7x 127.2x 65.7x 49.1x 22.7% 27.7% 22.9% 26.1% 28.1% -5.5% 4.9% 7.6% 13.8% Autodesk, Inc. 2.7x 2.6x 3.2x 3.1x 3.0x 12.6x 12.7x 15.7x 15.1x 14.8x 10.5% 6.8% 4.4% 0.8% -0.5% 21.2% 20.6% 20.7% 20.5% 20.3% AVG Technologies N.V. 2.1x 2.2x 2.3x 2.5x 3.0x 7.7x 7.4x 7.5x 8.1x 8.8x - 31.1% 30.7% 28.2% 27.2% 26.8% 29.3% 30.1% 31.4% 34.1% Bango PLC 4.6x 5.3x 8.2x 8.8x 8.5x - - - - - -19.3% -19.3% - - - -6.1% -6.1% -26.0% -29.0% -32.4% Blackbaud, Inc. 3.4x 2.9x 3.2x 3.4x 3.7x 22.1x 21.3x 22.0x 22.1x 20.8x 12.9% 16.6% 20.6% 23.6% 22.3% 15.2% 13.8% 14.5% 15.3% 17.8% Bottomline Technologies 3.2x 3.4x 3.7x 3.3x 3.4x 22.7x 27.2x 40.9x 38.3x 35.0x 18.4% 16.9% 14.9% 15.7% 13.6% 14.0% 12.5% 9.1% 8.7% 9.8% Broadridge Financial 1.3x 1.3x 1.4x 1.5x 1.6x 7.9x 7.9x 7.9x 8.5x 8.5x 6.3% 4.5% 3.4% 3.8% 5.5% 16.8% 16.9% 17.1% 17.4% 18.6% Brocade Communications Systems, Inc. 1.2x 1.1x 1.2x 1.1x 1.4x 5.4x 5.3x 5.5x 5.2x 6.2x 3.0% 4.2% 4.8% 4.8% 1.5% 21.2% 21.0% 21.8% 21.9% 22.2% BSQUARE Corporation 0.1x 0.1x 0.2x 0.1x 0.1x - 9.4x 7.8x 8.8x 12.9x -4.8% -2.1% 4.7% 0.3% -3.5% -0.3% 1.4% 2.1% 1.5% 1.0% CA Technologies 2.3x 2.0x 2.2x 2.4x 2.7x 6.5x 5.9x 6.5x 6.6x 7.4x 6.0% 2.4% -1.6% -3.6% -3.5% 35.4% 33.6% 33.9% 36.1% 36.4% Cadence Design Systems, Inc 2.6x 2.5x 2.7x 2.6x 2.8x 12.1x 11.3x 11.9x 11.3x 12.3x 19.9% 18.2% 15.4% 13.8% 12.7% 21.1% 22.6% 22.7% 23.0% 22.4% Cerner Corporation 4.9x 4.9x 5.4x 5.9x 5.9x 17.9x 18.1x 20.0x 21.0x 20.4x 24.5% 23.1% 20.9% 14.7% 12.3% 27.2% 27.3% 27.3% 28.2% 28.8% Check Point Software Tech Ltd. 6.5x 6.0x 6.5x 6.0x 7.2x 11.5x 10.5x 11.5x 10.7x 12.9x 11.4% 10.1% 7.7% 5.7% 4.4% 56.6% 56.6% 56.7% 56.4% 56.1% Cimatron Ltd. 0.5x 0.7x 1.3x 1.3x 1.3x 3.1x 4.5x 8.7x 8.5x 8.9x 9.6% 6.8% 3.9% 2.1% 1.6% 16.0% 14.9% 15.2% 14.7% 14.4% Cisco Systems, Inc. 1.4x 1.5x 1.7x 1.8x 2.0x 4.9x 5.1x 6.0x 6.3x 7.2x 6.6% 6.8% 5.4% 5.1% 5.5% 27.6% 28.8% 28.7% 28.1% 28.2% Citrix Systems, Inc. 5.5x 4.5x 4.8x 4.3x 4.6x 22.3x 18.9x 20.5x 19.0x 20.8x 18.1% 16.5% 17.2% 15.8% 16.5% 24.9% 23.7% 23.6% 22.5% 21.9% Commtouch Software Ltd. 2.0x 2.0x 3.0x 2.7x 2.4x 9.5x 11.9x 37.6x 182.2x - 10.3% 2.8% 3.9% 10.9% 21.2% 21.3% 17.1% 8.1% 1.5% -2.3% CommVault Systems, Inc. 4.7x 5.6x 6.6x 6.0x 6.7x 32.9x 36.3x 39.9x 34.7x 38.3x 25.4% 23.4% 23.4% 21.9% 21.7% 14.1% 15.6% 16.5% 17.3% 17.6% Computer Programs and Sys, Inc. 3.1x 3.1x 3.0x 2.9x 3.1x 12.8x 12.8x 12.5x 12.0x 12.5x 0.7% 1.9% 5.7% 6.1% 12.3% 24.1% 23.9% 24.2% 24.2% 24.9% Compuware Corporation 2.0x 2.1x 2.6x 2.5x 2.4x 12.5x 13.0x 15.3x 18.3x 17.4x 5.6% -2.2% -2.3% -6.5% -6.0% 16.3% 16.0% 16.8% 13.9% 13.9% Constellation 2.5x 3.0x 2.9x 3.1x 3.5x 11.9x 14.4x 13.9x 15.6x 17.5x 13.6% 10.9% 15.2% 20.4% 29.4% 20.7% 20.7% 20.7% 19.7% 19.7% CSG Systems International, Inc. 1.0x 0.9x 1.0x 1.0x 1.1x 4.6x 4.5x 4.9x 5.8x 6.6x 13.3% 6.4% 3.0% 2.2% 2.1% 21.5% 21.0% 19.3% 17.8% 17.1% - - - 6.0x 3.3x - - - - - 72.1% - 137.2% - - -35.7% -10.9% -9.8% -11.9% -17.1% Dassault Systèmes 4.3x 4.6x 4.6x 5.0x 5.3x 13.6x 14.7x 14.8x 16.0x 17.2x 12.1% 14.0% 13.8% 11.7% 8.4% 31.3% 31.1% 31.3% 31.0% 31.0% DST Systems, Inc. 1.3x 1.3x 1.4x 1.4x 1.4x 9.2x 9.4x 9.7x 9.4x 9.2x 7.7% 8.3% 7.9% 6.4% 5.2% 14.4% 14.2% 14.5% 14.7% 14.9% Electronic Arts Inc. 0.8x 0.8x 1.1x 1.4x 1.9x 11.8x 12.4x 10.5x 16.6x 20.2x 8.6% 6.2% 2.4% -8.4% -7.5% 6.6% 6.8% 10.2% 8.6% 9.5% EMC 2.5x 2.3x 2.2x 2.1x 2.3x 10.5x 9.9x 9.3x 8.8x 9.7x 13.0% 10.0% 8.5% 7.4% 6.4% 23.9% 23.8% 23.9% 23.8% 23.9% EPIQ Systems, Inc. 2.2x 2.1x 2.0x 1.9x 1.9x 9.6x 9.0x 9.1x 9.2x 9.9x 32.2% 28.5% 32.0% 25.9% 22.2% 22.9% 23.1% 21.6% 20.5% 19.1% Cyan, Inc. 66 Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved

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