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2Q13 Mobile Software Ecosystem, Valuation and M&A Trends

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2Q13 Mobile Software Ecosystem, Valuation and M&A Trends

2Q13 Mobile Software Ecosystem, Valuation and M&A Trends

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  • 1. Mobile Software Landscape – Select Companies Marketing & AdvertisingMarketing & Advertising Commerce & PaymentsCommerce & Payments Content & EntertainmentContent & Entertainmentyy Social & MessagingSocial & Messaging EnterpriseEnterprise HealthHealth InfrastructureInfrastructure Development Platforms Security Converged Communications AnalyticsLBS Acquired Public
  • 2. Brief Mobile Software Market  Update & Ecosystem 2Q132Q13 B d W kBrad Weekes  Vice President
  • 3. Disclaimer The information contained in this Report is obtained from sources  we believe to be reliable, but no representation or guarantee is , p g made about the accuracy or completeness of such information, or  the opinions expressed herein. Nothing in this Report is intended  t b d ti f ifi itto 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 y , y y q y p y have an interest in one or more of the securities or companies  discussed herein.  Financial data provided by Capital IQ.
  • 4. Mobile Software Landscape – Select Companies Marketing & AdvertisingMarketing & Advertising Commerce & PaymentsCommerce & Payments Content & EntertainmentContent & Entertainmentyy Social & MessagingSocial & Messaging EnterpriseEnterprise HealthHealth InfrastructureInfrastructure Development Platforms Security Converged Communications AnalyticsLBS Acquired Public
  • 5. Public Market Performance of Select Mobile Software Providers 14.5x ObservationsObservations EV/Rev  M lti l EV/Rev  M lti l • Majority of high performing mobile  companies have demonstrated an ability  to monetize through advertising and stand  to be major beneficiaries of the forecasted  growth in mobile advertising spend 14.5x 13.7x 9.6x 8.1x 7.1x 6.7x MultipleMultiple • Millennial Media’s EV/Revenue (2.9x) has  come down considerably from its IPO  when it hit 17.9x, as competition with  Google and Facebook for mobile ad dollars  intensifies 4.7x 3.9x 3.9x 3.3x 2.9x 2.9x 2.8x 1.5x 1.2x 0.8x 0.6x 0.5x 0.3x 0.1x 0.1x • Security firms are performing extremely  well,  benefiting from enterprise security  concerns as BYOD continues to gain  momentum 122% TTMTTM • Opera has succeeded while many of its  peers, who were also already in mobile  before Apple dramatically altered the  mobile ecosystem with the iPhone, failed  miserably.  Opera has pivoted its business  d l ff tti d li i it l73% 69% 66% 55% 42% 36% 36% 34% 23% 19% 19% 16% 12% 11% TTM  Revenue  Growth TTM  Revenue  Growth model, offsetting declines in its legacy  business of mobile browsers with rapidly  growing advertising and bandwidth  management revenue • Game providers are struggling due to  0% 0% 0% ‐3% ‐11% ‐34% inconsistent performance, lack of  differentiation and difficulty in monetizing  mobile as well as they have historically  done on the web • Some legacy mobile software providersSome legacy mobile software providers  are struggling to adjust their business  models from carrier centric to app  store/OEM centric
  • 6. TTM TTM Revenue TTM Gross TTM EBITDA EV/ EV/ Forward EV/ Forward EV/ YTD Stock Public Market Performance of Select Mobile Software Providers Company Ticker Market Cap EV TTM Revenue Revenue Growth Gross Margin EBITDA Margin EV/ Revenue EV/ EBITDA EV/ Revenue EV/ EBITDA Stock Return Bango BGO $127.9 $124.6 $17.6 -34.4% 19.1% -22.1% 7.1x n/a n/a n/a -7.7% BSQUARE BSQR $30.6 $11.2 $96.7 0.3% 18.2% 1.5% 0.1x 7.6x n/a n/a -9.5% Glu Mobile GLUU $151.3 $130.1 $85.1 19.3% 90.2% -10.4% 1.5x n/a 1.4x n/a -6.0% Google GOOG $292,076.9 $249,354.9 $53,499.0 33.8% 57.7% 31.4% 4.7x 14.8x 4.0x 10.9x 21.7% Gree TSE:3632 $2 070 0 $1 918 9 $1 648 9 11 5% 85 7% 40 4% 1 2x 2 9x n/a n/a -40 2%Gree TSE:3632 $2,070.0 $1,918.9 $1,648.9 11.5% 85.7% 40.4% 1.2x 2.9x n/a n/a -40.2% Facebook FB $60,157.5 $52,946.5 $5,489.0 35.9% 72.7% 23.9% 9.6x 40.4x 7.4x 14.2x -11.1% Millennial Media MM $692.8 $559.3 $194.2 68.7% 40.9% -0.9% 2.9x n/a 1.9x 27.8x -33.2% Myriad Group MYRN $154.2 $156.6 $54.5 -2.9% 22.7% -11.1% 2.9x n/a n/a n/a -3.9% NQ Mobile NQ $419.0 $304.3 $109.0 122.4% 69.9% 5.5% 2.8x 51.2x 1.5x 4.9x 34.0% OpenTable OPEN $1,457.0 $1,360.4 $167.8 15.6% 74.5% 29.2% 8.1x 27.8x 7.0x 15.4x 24.5% Opera OB:OPERA $942 3 $890 9 $231 1 35 9% 43 9% 27 2% 3 9x 14 2x n/a n/a 34 8%Opera OB:OPERA $942.3 $890.9 $231.1 35.9% 43.9% 27.2% 3.9x 14.2x n/a n/a 34.8% Qihoo 360 Technology QIHU $5,668.4 $5,367.4 $369.6 72.6% 89.4% 17.9% 14.5x 81.0x 8.1x 29.6x 55.0% Pandora Media P $3,216.4 $3,140.9 $471.9 55.2% 32.0% -8.2% 6.7x n/a 4.6x 121.3x 93.9% SmithMicro SMSI $39.5 $11.2 $44.8 -10.5% 80.6% -42.8% 0.3x n/a 0.2x n/a -34.2% Synchronoss Technologies SNCR $1,184.7 $1,127.4 $287.4 19.4% 58.5% 21.8% 3.9x 18.0x 3.1x 9.2x 42.7% Tangoe TNGO $575.7 $545.3 $165.2 41.5% 54.2% 8.7% 3.3x 38.1x 2.7x 16.4x 20.0% TeleCommunication Systems TSYS $137 1 $237 8 $482 1 10 8% 33 5% 7 9% 0 5x 6 3x 0 5x 5 0x 9 7%TeleCommunication Systems TSYS $137.1 $237.8 $482.1 10.8% 33.5% 7.9% 0.5x 6.3x 0.5x 5.0x -9.7% TeleNav TNAV $207.5 $20.0 $209.2 0.4% 68.9% 11.3% 0.1x 0.8x 0.1x 3.0x -34.5% Velti Plc VELT $127.0 $157.9 $259.6 22.8% 51.6% -1.9% 0.6x n/a 0.7x 17.2x -70.5% Yelp YELP $2,240.6 $2,146.1 $156.3 66.0% 92.9% -2.8% 13.7x n/a 8.9x 74.8x 76.5% Zynga, Inc ZNGA $2,207.0 $1,038.3 $1,223.9 0.5% 72.9% 11.7% 0.8x 7.2x 1.2x 20.9x 16.3% M $292 076 9 $249 354 9 $53 499 0 122 4% 92 9% 40 4% 14 5x 81 0x 8 9x 121 3x 93 9%Max $292,076.9 $249,354.9 $53,499.0 122.4% 92.9% 40.4% 14.5x 81.0x 8.9x 121.3x 93.9% Median: $692.8 $559.3 $209.2 19.4% 58.5% 7.9% 2.9x 14.8x 2.3x 15.9x -3.9% Average $17,804.0 $15,311.9 $3,107.8 27.8% 58.6% 6.6% 4.2x 23.9x 3.3x 26.5x 7.6% Min $30.6 $11.2 $17.6 -34.4% 18.2% -42.8% 0.1x 0.8x 0.1x 3.0x -70.5% • Public mobile software median and average EV/Revenue multiples as of 2Q13 were 2.9x and 4.2x, respectably • Leading firms with strong mobile offerings (Yelp, Facebook, Pandora, Opera, OpenTable, Google) are trading  notably higher, with median and  average EV/Revenue multiples of 7.4x and 7.8x, respectably • YoY revenue growth for leading mobile software firms is in excess of 30%, and in some cases approaching  100%
  • 7. Mobile Software M&A Volume M&A Volume by YearM&A Volume by Year• Mobile software M&A is hitting another inflection point and  M&A Volume by YearM&A Volume by Year is on pace to reach 338 transactions in 2013, up 44% YoY • Mobile software M&A is currently driven by: • The rapidly evolving and fragmented mobile ad‐tech  l d d i b i t ti ith d 338 landscape, driven by experimentation with new ad  formats and the emergence of programmatic buying • The need for mobile ad‐tech providers to achieve scale  and reach 113 224 235 and reach • Bring Your Own Device (BYOD) and its impact on the  enterprise 2010 2011 2012 2013 (F) M&A Volume by Product Category  as a % of Total Mobile Software M&A M&A Volume by Product Category  as a % of Total Mobile Software M&A • Exponential increases in mobile data consumption,  driving the need for bandwidth management • Recognition that mobile is not “just another channel”  d h i li d d i l bil l i ( ) and that specialized and exceptional mobile talent is  needed to fully leverage its potential and navigate its  complexities • Traditional software providers seeking solutions that 31% 22% 24% 10% 11% 17% 5% 9% 6% Social & Messaging Other Apps (including mobile app  developers) Marketing & Advertising • Traditional software providers seeking solutions that  complement their existing offerings • “Mobile first” software providers looking to extend their  leadership position by expanding their software suite  24% 7% 14% 8% 15% 22% 18% 24% Infrastructure Enterprise Content & Entertainment p p y p g with complementary product offerings 8% 8% 8% 24% 16% 18% 2011 2012 2013 YTD Commerce & Payments
  • 8. Mobile Software M&A Exit Multiples R fl ti th k t i t it d t ti l it lti l f bil ft i• Reflecting the market immaturity and potential, exit multiples for mobile software companies vary  dramatically • Across the spectrum of deal sizes, multiples ranged from 1.3x to 8.6x TTM revenue • Generally speaking, transactions in excess of $50M exhibited the strongest, most consistent exit  multiples, ranging from 4.7x – 6.5x TTM revenue • Note, at the low end, TTM revenue in this segment ranges from approximately $7M ‐ $10M • In aggregate, 2012 average and median EV/Revenue exit multiples were 4.0x vs. 2.7x, respectably EV/Revenue Exit Multiples by Transaction SizeEV/Revenue Exit Multiples by Transaction SizeEV/Revenue Exit MultiplesEV/Revenue Exit Multiples Median Average Median Average 2.9x 2 7x 4.5x 4.0x 3 5X 4.7X 5.0X 5.6X 8.6X 6.4X 6.5X 2.7x 1.3X 1.6X 3.5X 1.6X EV <= $10 EV > $10 & EV > $20 & EV > $50 & EV > $100 2011 2012 & EV <= $20 & EV <= $50 & EV <= $100 Enterprise Value Range ($ millions)
  • 9. Select Active Mobile Software Buyers (Last 2 Years) B T t N tBuyer Targets Notes 2Q11 2Q13 2Q11 2Q13 • Primarily talent acquisitions of very small mobile  startups, whose services were often shut down  shortly after acquisition • A handful of acquisitions, namely Summly and  GhostBird, will directly help enhance existing Yahoo  products • Most notable is the recent Waze acquisition for a  approximately $1B dollars.  Waze enhances Google’s  industry leading mobile maps offering • Other acquisitions focused on driving local commerce  (Zagat, Zave, TxVia), productivity (QuickOffice, Sparrow,  Wavii) and analytics (Behavio) • Much like Yahoo Zynga is using acquisitions to quickly • Most notable was the Instragram acquisition for  $1B i ff i (i h t • Much like Yahoo, Zynga is using acquisitions to quickly  enhance its mobile capabilities • OMGPOP, maker of ‘Draw Something’ was the most  expensive acquisition ($183M) but was shutdown after  15 months due to massive losses • Other acquisitions focused primarily on social gaming ~$1B, serving as an offensive (improve photo  capabilities) and defensive move (remove threat of  Instagram itself and others who may acquire it) • With the acquisition of Parse, Facebook enters a new  realm of helping developers monetize mobile • Opera has used acquisitions to enter new markets as  its legacy mobile browser business declines • Advertising came with the acquisition of 4th screen• Advertising came with the acquisition of 4th screen  and mobile theory, announced on the same day • Bandwidth management with Skyfire, for a hefty exit  multiple (~>30x) • Tangoe has used acquisitions to consolidate the  telecom expense management (TEM) market • After making four acquisitions in a span of nine  th di i A t 2012 T h bmonths ending in August 2012, Tangoe has been  inactive on the M&A front, focused on integrating its  products
  • 10. Top 10 Mobile Software M&A Transactions by Enterprise Value (EV) StockBuyer TargetDate EV  EV/Rev Cash Earnout 5/12/2010 $5,423 4.5x $5,423 ‐ ‐ 10/13/2009 $2,420 7.9x $2,420 ‐ ‐ 2/04/2013 $1 645 6 0x $1 6452/04/2013 $1,645 6.0x $1,645 ‐ ‐ 7/12/2011 $1,301 7.5x $651 $100 $550 6/14/2011 $1,150 1.5x $1,150 ‐ ‐ 11/14/2011 $1,050 5.5x $1,050 ‐ ‐ 4/09/2012 $1,000 ‐ $300 $700 ‐ 6/11/2013 $966 $9666/11/2013 $966 ‐ $966 ‐ ‐ 6/24/2008 $790 ‐ $790 ‐ ‐ 12/8/2005 $705 10.7x $705
  • 11. Top 10 Mobile Software M&A Transactions by EV/Revenue Multiple 9/20/2010 $42 66.9x $0.5 $16.5 $25 StockBuyer Target EV  EV/Rev Cash EarnoutDate 2/15/2013 $147 35.0x $76 $71 ‐ 10/13/2010 $70 25.0x $70 ‐ ‐10/13/2010 $70 25.0x $70 1/31/2012 $70 20.0x $70 ‐ ‐ 11/09/2009 $674 15.0x ‐ $674 ‐ 1/31/2011 $150 11.2x $100 ‐ $50 12/08/2005 $705 10.7x $705 ‐ ‐ $ $6/07/2012 $435 10.0x $435 ‐ ‐ 3/26/2012 $144 10.0x ‐ $144 ‐ 12/22/2011 $279 8.9x ‐ ‐ ‐ *Note: List excludes transactions where target revenue was withheld or less than $0 (i.e. Facebook/Instagram, Google/Waze) **Note: Akamai/Cotendo multiple is an estimate
  • 12. For Further Discussion…. To discuss the mobile ecosystem, M&A transactions  and/or your mobile business, please contact me:and/or your mobile business, please contact me: Brad WeekesBrad Weekes P: 858.509.2800 C: 858.945.3032C: 858.945.3032
  • 13. Brief Software Equity  Group Overviewp
  • 14. Leaders in Software & Technology Advisory Services • Twenty­one year, exclusive focus on software  advisory services to lower middle market (i.e., client  revenue $5 ‐ $50M) representing companies seeking: • Strategic exit Focus on Advice • Growth capital • Buyout • Inorganic growth via acquisition • Fairness opinions and valuations B d d i i Advisory • Board advisory services • Clients span virtually every technology, product  category, delivery model and vertical market Multi­ Focus on  Advisory  Boutiques • Global presence providing advice and guidance to  more than 2,000 private and public companies  throughout US, Canada, Europe, Asia‐Pacific, Africa and  Israel Industry Software Bulge Bracket Firms IPO Boutiques • Strong cross­functional team leveraging transaction,  operating, legal and engineering experience g • Unparalleled software industry reputation, track  record and industry research • Highly referenceable base of past clients and buyers /  investors Multi­service  investors
  • 15. 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 Saudi Arabia • 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 distributed to an  l f 5 bl fopt‐in list of 50,000 public software company CEOs,  software entrepreneurs, private equity managing  directors, VCs, high tech corporate lawyers, public  accountants, etc. in 76 countries. 
  • 16. A little about me… O 15 f ti l d i t t b kiOver 15 years of operational and investment banking  experience in mobile, wireless and software sectors Nearly 10 years of operational experience in mobile y y p p specifically, working closely with a number of vendors in  the space P d t l d f d i i bil i iProduct lead for award winning mobile music service Strategic consultant for mobile browser and widget  runtime providerp MBA, UCLA Anderson School of Management M. Eng, Electrical Engineering, UCSD B S C t E i i UCSDB.S., Computer Engineering, UCSD
  • 17. To discuss the mobile ecosystem, M&A transactions  and/or your mobile business, please contact me:and/or your mobile business, please contact me: Brad WeekesBrad Weekes P: 858.509.2800 C: 858.945.3032C: 858.945.3032

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