The document discusses mergers and acquisitions (M&A) in the software development outsourcing industry in Central and Eastern Europe between 2015-2018. It notes that the CEE outsourcing market grew at 25% annually during this period, outpacing the global average of 5%. Major trends in the region included increasing M&A activity and valuations, with larger players pursuing acquisitions to support eventual IPOs or exits from the market.

1. CEE software development
outsourcing: M&A in 2015-18
April 2019

2. M&A advisory for IT Services
companies in CEE
• Sell-side advisory: partial or full sale
• Buy-side advisory
• M&A strategy development and implementation
$100M
Professional, client-tailored investment
banking services for IT Services companies
in completed transactions
2 AVentures overview

3. 3 Capital Times overview
World class wealth management and
investment banking services
• M&A transactions
• Fundraising
• Business value maximization
Partners in 43 countries (74 offices)
156
M&A deals in
2018
$2.5B
M&A deals
value in 2018
600+
Investments
professionals
Financial advisor for institutional
and private clients
100+
consulting
projects
22
closed
M&A deals
$100M+
under
management

4. 4 Software Development Report
Software Development in Ukraine,
Poland, Belarus and Romania
• Industry and market insights
• Extensive country profiles
• M&A trends
• Long list of companies: focus areas, contacts
software-development-cee-report.com

5. Financial investors
Financial investors: capitalizing on
superior growth and profitability Superior growth and high profitability attract interest from
both large international and local financial investors
Consistent growth of
outsourcing globally
Faster-than-market
average growth of the
outsourcing in CEE
Attractive growth and financial performance of
CEE outsourcing leaders
+ +
High global demand for development
capabilities to deliver increasingly
complex and short time-to-market projects
630
843
2015A 2021F
Global IT outsourcing industry value, US$bn
CAGR: 5%
25% YOY
CEE outsourcing market growth in
2018 by our estimations
2013-17 revenue CAGR, %
27% 26%
32%
EPAM Luxoft Endava
9% 13%
4%
Altran Alten Devoteam
2017 EBITDA margin, %
Source: AVentures Capital
Source: Gartner
14% 13%
17%
EPAM Luxoft Endava
10% 11% 10%
Altran Alten Devoteam
CEE
Source: Morningstar
Restoftheworld
5

6. What most of large acquirers seek for
What most of large
acquirers seek for…
1
Mid-market and/or enterprise clients
Above the market average 30+% y-o-y
consistent revenue growth
Company’s ability to retain and win new
large contracts, so the most of the
revenue is recurring
High EBITDA (over 15%) and Gross
margin (over 40%)
Founders’ willingness to stay for 2-4
years post acquisition
Other strategic rationales might play a role depending
on an acquirer: type of delivery, technology
specialization or broad stack etc.
2
3
4
5
6
6

7. Strategics: key M&A rationales
… and key strategic rationales
driving M&A roll on strategy Inorganic growth is a way for established players to
expand capabilities, client portfolios and scale
Vertical capabilities
• Acquisition of new verticals or deepening of existing capabilities
Deal example: Luxoft – IntroPro, 2017 (Media, TV and Entertainment
vertical)
Delivery diversification
• New delivery geographies to diversify market / political risks
• Delivery in new countries/regions enables to tap into talent pool
Deal example: Endava – Velocity Partners, 2018 (delivery centers in
Argentina, Uruguay, Colombia, Venezuela)
Client acquisition
• Acquisition of new clients or enhancement of current client profile
• Small players can be attractive depending on their client profile
Deal example: GlobalLogic – Rofous Software, 2011 (e.g. LinkedIn, Stryker)
Scale
• Enables companies to bid for larger
projects
Deal example: Helmes – Solbegsoft, 2018
We expect established players to continue
consolidating a fairly fragmented market
Technical / language capabilities
• Enhancement of tech teams is faster via M&A than
through organic growth
Deal example: Smile – Adyax, 2018
7

8. Upward trend in M&A activity in the region
Result: upward trend in M&A activity
in the region; 2018 was a peak year
• Attractiveness of the software development
outsourcing industry is at a peak level
• 2018 had the highest number of M&A/cash out
in CEE/CIS region during the last decade
Selected PE funds active in the region
Selected strategics active in acquisitions
5
19
22
30
2015 2016 2017 2018
Count of M&A deals announced in Ukraine, Poland,
Belarus, Romania in 2015-18
8
Source: AVentures Capital

9. M&A expansion strategy in pursuit of IPO
Industry leaders expand through
M&A, pursuing IPO / exit play
5+ well-funded CEE players with revenue from
$50M up to $100M+ are expanding through M&A
with the aim of IPO / exit play
Our insights into recent deals demonstrate that
implied EV / Revenue lies in 1.0x-2.0x range and
EV / EBITDA in 7.0x-14.0x range
Germany
Argentine
Merged from:
Krakow
Note: “Ukraine / Belarus” or “Lviv” –
main delivery locations
Belarus / Russia
Russia / Ukraine /
Poland / Argentine
Lviv
Ukraine / Belarus /
Poland / Spain
Russia / Ukraine
/ Central Europe
Russia / Ukraine /
Poland
9
Lviv

10. Indicative M&A valuation factors:
software development in Ukraine
Up to 2014 2014-17 After 2018
Bottom Growth
~1.0x 1.2x-1.4x up to
1.5x-2.0x
1. Multiples went up double-digit in 2018
EV / Revenue in different time periods
2. Profitability
3. Revenue growth y-o-y, revenue resilience
4. Size
EV / Revenue vs y-o-y revenue growth
EV / Revenue vs EBITDA margin EV / Revenue vs revenue in US$M
0%
25%
50%
1 1.5
~1.0x
~1.5x+ • Sustained revenue growth
increases the multiples
• Higher top-life growth
revenue à higher multiple
Large businesses tend to have
more recurring large
enterprise clients à higher
multiples
To justify increased multiple
higher revenue growth must
be coupled by healthy
profitability
0.5
1
1.5
2
10 100
~1.0x
~1.5x-2x
0.5
1
1.5
2
10% 25%
Indicative M&A valuation factors
~1.0x
~2.0x
10
Valuation metrics provided are indicative
and illustrate general dynamics
All the factors magnify each other
and should be evaluated together

11. Software development M&A:
executive summary
Growth 4-5x faster than globally
Strong fundamentals
Peak M&A activity in 2018
Leaders` M&A à IPO / exit play
• CEE outsourcing grows much faster than global average: 20-25%* y-o-y vs 5% globally
Note: growth rate estimated by AVentures Capital. Based
on the financials of a set of market players who disclosed
their results directly to AVentures Capital
• Fundamentals are very strong for continuous growth, we expect the CEE software
outsourcing sector to double in revenue terms within 4-5 years
• Peak number of M&A / investments in CEE in 2018: 30 deals announced
• Most of the deals closed in 2018 were in the range of 1-2x EV / Revenue and 7-14x
EV / EBITDA
• 5+ well-funded CEE players with revenue around $100M or more are expanding
through M&A with the ultimate aim of IPO / exit play
“Seller`s” M&A market in Ukraine • Limited number of companies are put for sale, much more demand to acquire than
interest to sell
• We expect “Seller`s market” to prevail in 2019 – fast track to the liquidity event for those
who decide to sell
11 Executive summary

12. Contacts of the
speakers
12 Contacts of the speakers
Yaroslavska str. 58,
Kyiv 04070 Ukraine
Tel: +380 (44) 499 88 34
Web: capital-times.com
Surganova str. 57B,
Minsk 220100 Belarus
Tel: +375 17 388 01 16
Web: capital-times.com
Oleg Stadnik
M&A Director
Mob.: +380 (67) 380 84 49
E-mail: o.stadnik@capital-times.com
Yaroslavska str. 58,
Kyiv 04070 Ukraine
Web: aventurescapital.com
Yevhenii Vashchuk
M&A Associate
Mob.: +380 (50) 468 16 42
E-mail: yv@aventurescapital.com