Applied Technology & Digital Media Industry Update Q2 2017
Q2 M&A TRANSACTION SUMMARY Q2 Deal Volume (1) Applied Technology & Digital Media M&A decreased slightly in Q2 2017 following an increase in transaction activity in Q4 2016 and Q1 2017 For Q2 2017, IT Services was the most active M&A segment of the Applied Technology & Digital Media universe 500 400 300 200 394 346 384 401 395 Networking Hardware Digital Media & 3 Marketing Services 6 Software as a Service 29 IT Services 206 100 0 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Application Software 151 Q2 2017 total Applied Technology & Digital Media M&A transaction volume was 395, representing a 0.3% increase from Q2 2016 Footnote: (1) Defined as U.S. or Canadian targets that fall within our core Applied Technology & Digital Media coverage sectors or transactions completed by companies in BlackArch s public company coverage universe 2
NOTABLE M&A TRANSACTIONS TPG Capital acquired a 51% stake in McAfee LLC from Intel Corporation for $3.1 billion on April 3, 2017. Veritas Capital Fund Management acquired Peraton Corporation from Harris Corporation for $690 million on April 28, 2017. This valuation represents a 0.7x revenue multiple. April 2017 McAfee LLC develops and delivers security solutions and services that protect systems, networks and mobile devices. April 2017 Peraton Corporation provides information technology and engineering managed services to government agencies. Equinix, Inc. acquired Verizon s Portfolio of 24 Data Center Sites from Verizon Communications Inc. for $3.6 billion on May 1, 2017. This valuation represents a ~13x adjusted EBITDA multiple. BC Partners and Medina Capital acquired Century Link Inc s Data Centers and Colocation Business from CenturyLink, Inc. for $2.3 billion on May 1, 2017. This valuation represents a 3.6x revenue multiple. 24 data centers May 2017 Verizon s 24 data center sites consist of 29 data center buildings across 15 metro areas. Data Center and Colocation Business May 2017 Century Link Inc s Data Centers and Colocation Business consist of 57 data centers and 700 employees. TPG AG TBG AG acquired Telvent DTN LLC from Schneider Electric for $900 million on June 1, 2017. This valuation represents a 4.2x revenue multiple. Finastra Group Holdings Limited acquired DH Corporation from 1832 Asset Management LP for $3.5 billion on June 13, 2017. This valuation represents a 14.6x EBITDA multiple. June 2017 Telvent DTN develops business management tools that enable companies and industry traders to manage their business through information solutions and market intelligence products. June 2017 DH Corporation provides payments, lending and financial solutions to banks, specialty lenders, credit unions, governments and corporations. 3
APPLIED TECHNOLOGY & DIGITAL MEDIA PERFORMANCE INDEX Public Company Trading Multiple Trend Analysis Y-o-Y 30 12-Month Change (%) Y-o-Y Q-o-Q 25 Application Software Q-o-Q 20 15 10 IT Services, Outsourcing & Training Digital Media & Marketing Services 5 Enterprise Software & Services 3-Month Change (%) Diversified Computer Hardware Software as a 0 Service -10-5 0 5 10 15 20 25 30 35 Networking Hardware, Software & Services -5 Semiconductors and Equipment Y-o-Y Q-o-Q -10 Y-o-Y Q-o-Q Note: Size of each data point corresponds to the relative size of each sub-sector s trading multiple 4
PUBLIC COMPANY TRADING MULTIPLE SNAPSHOT As of June 30, 2017 Sub-sector Median TEV/EBITDA Multiple Application Software 20.8x Enterprise Software & Services 16.3x Software as a Service (1) 37.1x Digital Media & Marketing Services 15.9x IT Services, Outsourcing & Training 11.7x Diversified Computer Hardware 8.6x Networking Hardware, Software & Services 8.1x Semiconductors and Equipment 11.7x (1) The sub-sector s Median TEV/Sales for the same period was 7.2x 5
COMPARABLE PUBLIC COMPANY ANALYSIS ($ in Millions Except Per Share Amounts) Market Data LTM Financial and Performance Data (1) Valuation Multiples Price 52-Week Equity EBITDA 3 Yr. Revenue TEV/LTM: Company 6/30/2017 High Low Value TEV (2) Revenue EBITDA Margin CAGR % Revenue EBITDA Software Application Software Adobe Systems Incorporated $141.44 $147.45 $94.06 $69,787 $66,744 $6,526 $2,141 32.8% 16.7% 10.2x 31.2x Intuit Inc. 132.81 143.81 103.22 34,028 32,935 5,089 1,580 31.0% 4.8% 6.5x 20.8x Autodesk, Inc. 100.82 114.68 51.89 22,220 21,900 2,005 (294) (14.7%) (4.4%) 10.9x NM Symantec Corporation 28.25 33.22 20.04 17,183 21,113 4,310 714 16.6% (13.7%) 4.9x 29.6x Dassault Systèmes SE 89.55 97.46 75.12 22,774 20,688 3,624 914 25.2% 14.5% 5.7x 22.6x Open Text Corporation 31.54 35.21 28.85 8,324 10,495 2,291 632 27.6% 12.1% 4.6x 16.6x Synopsys, Inc. 72.93 76.57 53.02 10,962 10,248 2,582 497 19.3% 9.2% 4.0x 20.6x Ansys, Inc. 121.68 129.85 82.28 10,404 9,537 1,034 461 44.6% 4.9% 9.2x 20.7x Cadence Design Systems, Inc. 33.49 35.69 23.83 9,364 9,510 1,845 408 22.1% 7.5% 5.2x 23.3x Nuance Communications, Inc. 17.41 19.93 13.44 5,008 6,806 1,980 406 20.5% 1.5% 3.4x 16.7x Tyler Technologies, Inc. 175.67 178.09 139.61 6,514 6,431 796 176 22.0% 20.5% 8.1x 36.6x Teradata Corporation 29.49 33.32 24.51 3,860 3,257 2,182 250 11.5% (7.3%) 1.5x 13.0x Manhattan Associates, Inc. 48.06 68.00 44.83 3,337 3,236 597 202 33.8% 9.8% 5.4x 16.0x Median 22.1% 7.5% 5.4x 20.8x Enterprise Software & Services Microsoft Corporation $68.93 $72.89 $50.39 $532,175 $496,594 $89,950 $30,432 33.8% 1.2% 5.5x 16.3x SAP SE 104.78 109.89 75.57 125,588 126,476 26,428 6,585 24.9% 10.9% 4.8x 19.2x Cerner Corporation 66.47 69.28 47.01 21,964 21,982 4,827 1,351 28.0% 18.0% 4.6x 16.3x Red Hat, Inc. 95.75 100.80 68.54 16,998 16,110 2,521 433 17.2% 16.5% 6.4x 37.2x CA, Inc. 34.47 36.54 30.01 14,519 14,676 4,062 1,246 30.7% (2.5%) 3.6x 11.8x Citrix Systems, Inc. 79.58 95.90 70.24 12,028 12,072 3,441 987 28.7% 4.1% 3.5x 12.2x The Sage Group plc 8.94 10.49 7.73 9,654 10,093 2,160 619 28.7% 9.2% 4.7x 16.3x Pegasystems, Inc. 58.35 64.85 24.71 4,501 4,353 804 75 9.4% 12.9% 5.4x NM Allscripts Healthcare Solutions, Inc. 12.76 15.17 9.80 2,315 3,979 1,657 160 9.7% 6.5% 2.4x 24.9x MicroStrategy Incorporated 191.67 207.28 161.90 2,194 1,575 511 109 21.4% (4.5%) 3.1x 14.4x Quality Systems, Inc. 17.21 17.55 10.61 1,079 1,057 518 61 11.8% 4.6% 2.0x 17.3x Median 24.9% 6.5% 4.6x 16.3x Software as a Service Salesforce.com, inc. $86.60 $91.99 $66.43 $61,677 $60,992 $8,863 $449 5.1% 26.2% 6.9x NM ServiceNow, Inc. 106.00 110.66 64.31 18,007 17,548 1,632 (32) (2.0%) 44.4% 10.8x NM The Ultimate Software Group, Inc. 210.06 225.63 180.29 6,243 6,168 861 62 7.2% 23.4% 7.2x NM LogMeIn, Inc. 104.50 123.95 59.06 5,499 5,233 618 128 20.7% 47.6% 8.5x 41.0x RealPage, Inc. 35.95 38.25 21.62 2,972 3,034 611 91 14.9% 16.2% 5.0x 33.2x 2U, Inc. 46.92 48.40 28.78 2,231 2,102 239 (20) (8.4%) 35.4% 8.8x NM Cornerstone OnDemand, Inc. 35.75 47.75 30.31 2,031 1,982 445 (45) (10.2%) 26.1% 4.5x NM Median 5.1% 26.2% 7.2x 37.1x Sub-Sector Median 19.9x Footnotes: (1) LTM refers to the most recent twelve-month period for which data was available (2) Total enterprise value equals equity value plus minority interest, preferred stock and net debt; net debt equals total debt less cash and cash equivalents 6
COMPARABLE PUBLIC COMPANY ANALYSIS ($ in Millions Except Per Share Amounts) Market Data LTM Financial and Performance Data (1) Valuation Multiples Price 52-Week Equity EBITDA 3 Yr. Revenue TEV/LTM: Company 6/30/2017 High Low Value TEV (2) Revenue EBITDA Margin CAGR % Revenue EBITDA Technology Services Digital Media & Marketing Services Alphabet Inc. $908.73 $988.25 $688.22 $635,840 $547,338 $99,275 $32,251 32.5% 17.7% 5.5x 17.0x Facebook, Inc. 150.98 156.50 112.97 437,567 405,261 33,173 18,084 54.5% 49.1% 12.2x 22.4x Akamai Technologies, Inc. 49.81 71.64 46.81 8,611 8,411 2,418 684 28.3% 11.1% 3.5x 12.3x Forrester Research, Inc. 39.15 44.40 34.95 694 560 328 38 11.5% 2.6% 1.7x 14.9x Median 30.4% 14.4% 4.5x 15.9x IT Services, Outsourcing & Training Cognizant Technology Solutions Corp. $66.40 $68.18 $45.44 $39,109 $36,044 $14,131 $2,775 19.6% 13.8% 2.6x 13.0x CGI Group Inc. 50.98 53.26 42.20 14,890 16,067 8,325 1,400 16.8% 1.1% 1.9x 11.5x Syntel, Inc. 16.96 48.41 15.82 1,418 1,791 932 249 26.7% 1.9% 1.9x 7.2x ManTech International Corporation 41.38 45.52 33.50 1,606 1,514 1,642 126 7.7% (6.0%) 0.9x 12.0x Median 18.2% 1.5% 1.9x 11.7x Sub-Sector Median 12.6x Hardware and Equipment Diversified Computer Hardware Apple Inc. $144.02 $156.65 $94.37 $750,897 $782,511 $220,457 $69,715 31.6% 7.8% 3.5x 11.2x Samsung Electronics Co., Ltd. 2,075.55 2,113.09 1,232.93 261,573 215,002 185,721 50,732 27.3% (1.8%) 1.2x 4.2x International Business Machines Corp. 153.83 182.79 147.79 144,523 176,735 78,439 17,194 21.9% (6.8%) 2.3x 10.3x HP Inc. 17.48 19.58 12.04 29,425 30,022 49,473 4,301 8.7% (23.8%) 0.6x 7.0x Median 24.6% (4.3%) 1.7x 8.6x Networking Hardware, Software & Services Cisco Systems, Inc. $31.30 $34.60 $28.17 $156,502 $120,998 $48,510 $15,048 31.0% 0.9% 2.5x 8.0x Juniper Networks, Inc. 27.88 30.96 21.18 10,653 9,803 5,201 1,206 23.2% 2.3% 1.9x 8.1x F5 Networks, Inc. 127.06 149.50 110.86 8,221 7,206 2,077 628 30.2% 7.7% 3.5x 11.5x Brocade Communications Systems 12.61 12.70 8.64 5,171 5,423 2,382 361 15.2% 2.7% 2.3x 15.0x NETGEAR, Inc. 43.10 60.82 41.50 1,399 1,038 1,342 144 10.7% (2.0%) 0.8x 7.2x Median 23.2% 2.3% 2.3x 8.1x Semiconductors and Equipment Intel Corporation $33.74 $38.45 $32.38 $158,882 $167,571 $60,481 $23,672 39.1% 4.6% 2.8x 7.1x QUALCOMM Incorporated 55.22 71.62 51.05 81,584 83,529 22,571 7,146 31.7% (4.9%) 3.7x 11.7x Texas Instruments Incorporated 76.93 84.65 60.46 76,647 76,956 14,184 6,279 44.3% 4.2% 5.4x 12.3x Applied Materials, Inc. 41.31 47.86 23.49 44,393 43,151 12,942 3,516 27.2% 15.0% 3.3x 12.3x Micron Technology, Inc. 29.86 32.96 11.50 33,145 41,334 17,401 7,031 40.4% 5.1% 2.4x 5.9x Lam Research Corporation 141.43 167.05 80.68 22,814 19,630 8,014 2,219 27.7% 20.3% 2.4x 8.8x Microchip Technology Incorporated 77.18 87.49 48.97 17,705 19,353 3,581 1,255 35.0% 21.5% 5.4x 15.4x KLA-Tencor Corporation 91.51 109.59 66.88 14,345 14,597 3,480 1,334 38.3% 5.9% 4.2x 10.9x Marvell Technology Group Ltd. 16.52 18.18 9.13 8,303 6,654 2,377 434 18.2% (13.1%) 2.8x 15.3x Cypress Semiconductor Corporation 13.65 14.98 9.63 4,497 5,578 2,036 180 8.8% 41.4% 2.7x 31.1x Cabot Corporation 53.43 61.34 43.95 3,338 4,255 2,613 488 18.7% (10.4%) 1.6x 8.7x Cirrus Logic, Inc. 62.72 71.97 34.82 4,040 3,649 1,600 414 25.9% 31.0% 2.3x 8.8x Silicon Laboratories Inc. 68.35 78.45 45.94 2,894 2,605 715 114 15.9% 7.2% 3.6x 22.9x Median 27.7% 5.9% 2.8x 11.7x Sub-Sector Median 10.6x Footnotes: (1) LTM refers to the most recent twelve-month period for which data was available (2) Total enterprise value equals equity value plus minority interest, preferred stock and net debt; net debt equals total debt less cash and cash equivalents 7
APPLIED TECHNOLOGY & DIGITAL MEDIA COVERAGE TEAM Founder of BlackArch Partners and head of Applied Technology & Digital Media practice BlackArch Partners, Associate M&T Bank, Officer Kelly Katterhagen Managing Director Office: (704) 414-6304 Mobile: (704) 607-2048 Katterhagen@ BlackArchPartners.com Completed over 60 middle-market M&A transactions and multi-year advisory engagements President of IOA Corp. advised privately held businesses on equity maximization and liquidity planning Director at Bowles Hollowell Conner & Co. Officer at J.P. Morgan & Co. Jonathan O Connor Associate Office: (704) 414-6322 Mobile: (407) 443-7087 OConnor@ BlackArchPartners.com LifeNet International, Co-Founder CNL Financial Group M.B.A. from University of Virginia s Darden School of Business B.S. in Finance from Southeastern University M.B.A. from Harvard Business School and B.A. from Colgate University, magna cum laude JOHNNY CONKLIN Managing Director Office: (704) 414-6316 Mobile: (704) 930-8311 Conklin@BlackArchPartners.com CHRIS VINCENT Associate Office: (704) 414-6338 Mobile: (301) 807-3575 Vincent@BlackArchPartners.com JULIE NEVELEFF Analyst Office: (704) 414-6348 Mobile: (301) 257-3090 Neveleff@BlackArchPartners.com 8