2015 Annual. The Software Industry Financial Report

Transcription

1 2015 Annual The Software Industry Financial Report Software Equity Group, L.L.C El Camino Real Suite 320 San Diego, CA (858)

2 SOFTWARE INDUSTRY FINANCIAL REPORT CONTENTS About Software Equity Group Leaders in Software M&A 5 Extensive Global Reach 6 About Software Equity Group 7 Software Industry Macroeconomics U.S and Global GDP 9 U.S. GDP and Unemployment 10 Global IT Spending 11 E-Commerce and Digital Advertising Spend 12 Stock Market Performance 13 Public Software Financial and Valuation Performance The SEG Software Index 15 The SEG Software Index: Financial Performance The SEG Software Index: Public Market Multiples The SEG Software Index by Product Category 24 The SEG Software Index by Product Category: Financial Performance 25 The SEG Software Index by Product Category: Public Market Multiples 26 Public SaaS Company Financial and Valuation Performance The SEG SaaS Index 28 The SEG SaaS Index: Financial Performance The SEG SaaS Index: Public Market Multiples The SEG SaaS Index by Product Category: Financial Performance 38 The SEG SaaS Index by Product Category: Public Market Multiples 39 Public Internet Company Financial and Valuation Performance The SEG Internet Index 41 The SEG Internet Index: Financial Performance The SEG Internet Index: Public Market Multiples The SEG Internet Index by Product Category 50 The SEG Internet Index by Product Category: Financial Performance 51 The SEG Internet Index by Product Category: Public Market Multiples 52 2

3 SOFTWARE INDUSTRY FINANCIAL REPORT CONTENTS Software/SaaS/Internet IPO Annual Software IPO Trends Software IPO Data 55 Venture Capital Activity: All Industry Sectors 56 Venture Capital Activity: Software 57 The Buyers Speak: Software Equity Group s 2015 Annual M&A Survey Results Summary Results Software Industry M&A Market Update Software/SaaS M&A Deal Volume and Spending 66 Software M&A Exit Multiples Software M&A by Ownership Structure and Size 69 Software M&A by Vertical and Horizontal Markets 70 Software M&A Deal Volume by Product Category 71 Software M&A Exit Valuations by Product Category 72 SaaS M&A Deal Volume and Exit Multiples SaaS M&A by Product Category 75 Internet M&A: Deal Volume and Exit Multiples 76 Internet M&A: By Product Category 77 Appendix SEG Software Index Key Metrics SEG Software Index Key Metrics by Product Category SEG SaaS Index Key Metrics SEG SaaS Index Key Metrics by Product Category 87 SEG Internet Index Key Metrics SEG Internet Index Key Metrics by Product Category Select Public Sellers Mega Deals Most Active Buyers Select SaaS Transactions About Software Equity Group 115 3

4 ABOUT SOFTWARE EQUITY GROUP

5 LEADERS IN SOFTWARE M&A We Do Deals. Industry leading boutique investment bank, founded in 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 private and public companies throughout 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 5

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 distributed to an opt-in list of 70,000 public software company CEOs, software entrepreneurs, private equity managing directors, VCs, high tech corporate lawyers, public accountants, etc. in 78 countries. 6

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 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 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 the industry reputation we enjoy. Software Equity Group is known and respected by publicly 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 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) , kbeible@softwareequity.com. CONTACT INFORMATION: Software Equity Group, L.L.C El Camino Real, Suite 320 San Diego, CA p: (858) 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. 7

8 SOFTWARE INDUSTRY MACROECONOMICS

9 U.S. AND GLOBAL GDP Global GDP (% YoY Change) Growth of the global gross demestic product (GDP) from 2004 to 2014 (compared to the previous year) U.S. GDP (% YoY Change) Annual growth of the Real Gross Domestic Product (GDP) of the United Stats from 2006 to % 4% 3.40% 6% 5% 4% 3% 4.88% 5.56% 5.67% 3.04% 5.43% 4.14% 3.37% 3.28% 3.31% 3% 2% 1% 0% -1% 2.70% 1.80% -0.30% 2.50% 1.60% 2.30% 2.20% 2.40% 2% -2% 1% 0% 0.10% % -4% -2.80% Worldwide GDP growth remained flat for the third consecutive year. In an update to its "World Economic Outlook", the IMF predicted the global economy will have grown 3.7 percent in 2014, beating last October s 3.6 percent growth forecast by just a hair. Global growth in 2015 and 2016 is projected at 3.5 and 3.7 percent, respectively, 0.3 percent lower than the IMF s October 2014 WEO. The latest IMF forecast for 2015 projects a gradually improving global economy that will remain vulnerable to a host of economic and geopolitical risks, including deflation in Europe and Japan, slower growth in China, a declining Euro and resurgent U.S. Dollar, lower oil prices, and continuing geopolitical upheavals and renewed fears of default by Greece stemming from recent election results. Globally, GDP is expected to inch up to 3.5% in 2015 and 3.7% in GDP growth in developed nations is expected to grow at a median of 2.4% in both 2015 and 2016, a modest improvement over 2014 s 1.8%. These projections were revised downward by 0.3% from the IMF s October 2014 World Economic Outlook in response to a host of mostly negative developments. The United States is the only major economy for which growth projections have been raised. Sources: IMF Worldbank, The Economist, Council of Economic Advisors, and Statista 9

10 U.S. GDP AND UNEMPLOYMENT According to November s Federal Reserve survey of 43 economists, GDP growth in the U.S. for 4Q14 is forecast to be 3.1%. For the year, expectations are that the U.S. economy grew 2.2% in 2014, up from 2.0%. A surprisingly weak first half tempered earlier expectations for a more robust U.S. annual growth rate in s growth outlook also calls for further reduction in the U.S. unemployment rate. Economic forecasters predict unemployment, which averaged 6.2 percent in2014, will fall to 5.6 percent in 2015, and decline further to 5.4 percent in2016 and 5.2 percent in On a quarterly basis, the Labor Department reported 5.6% unemployment at the end of 4Q14. a marked improvement from 1Q14 s 6.6% unemployment rate, and the lowest since The labor participation rate showed minimal decline, edging down slightly to 62.7% in December, a 35 year low that can be attributed to an aging population of baby boomers that are beginning to retire. This leads to a natural demographic decline in the participation rate. 10

11 GLOBAL IT SPENDING Global IT Spending (% YoY Change) Global IT Spending by Category 6.0% 8.0% 6.0% 2.0% 2.0% 2.1% 3.7% (F) -10.0% At the outset of 2014, analysts at Goldman Sachs, Gartner and elsewhere projected Global IT spending in 2014 would increase 4.0%, a notable improvement from the tepid 2.0% growth that has prevailed over the past two years. The forecast proved far too optimistic due to a weak first half; global IT spending is estimated to have grown only 2.1% in Gartner projects worldwide IT spending will grow 2.4% in 2015, and exceed $3.8 trillion. By 2018, spending is forecast to be greater than $4.1 trillion. After accounting for exchange rate fluctuations, the corresponding 2015 constant-currency growth rate is predicted to be 3.7%. Forrester estimates software will account for 27% of all tech spending, leading all other categories. According to Forrester, Software s leading position is not a surprise, because it is the focal point for tech innovation today, whether that innovation takes the form of cloud computing and adoption of SaaS, PaaS, smart computing and big data, real-time predictive analytics and smart process apps, or mobile computing and mobile apps and enterprise app stores. Sources: Global IT spending chart is a blended average of Goldman Sachs, IDC, Forrester, and Gartner forecasts. IT Spending by Category chart from Forrester. 11

12 E-COMMERCE AND DIGITAL ADVERTISING SPEND U.S. E-Commerce Spend U.S. Digital Advertising Spend E-commerce retail sales in the U.S. totaled $78.1 billion in 3Q14 (the latest data available), up 11% YoY. The increase marks the twentieth consecutive quarter of YoY growth, and the sixteenth consecutive quarter of double digit growth. The Q3 total for E-Commerce spending accounted for 6.6% of all discretionary retail dollars spent. Mobile commerce accounted for $6.7 billion, or 11.1% of the 2014 E-Commerce total, according to comscore. In addition, YoY growth in mobile commerce grew 16%. The digital commerce growth rate of 14% in Q4 far exceeded the 3% growth in total consumer discretionary spending, confirming that the shift to online continues unabated. According to Forrester, U.S. digital ad revenues will total $37.6 billion in 2019, with the most growth coming from video advertising. Forrester predicts video advertising on desktop devices alone will grow 14% annually until 2019, when it will contribute 55% of total desktop display ad revenue across the Web. Sources: comscore, IAB, IBD, and Forrester 12

13 STOCK MARKET PERFORMANCE Technology stock prices recovered some ground in 4Q14, especially high-growth, SaaS based and Internet companies that had been struggling to recapture pre-recession growth rates. The Nasdaq posted the best return of the three major stock indices in 2014, finishing up 13.4%. The S&P followed closely behind, ending the year +11.4%. Surprisingly, in an environment where investors flocked to value stocks in 1H14, the DOW performed worst among the three major U.S. stock market indices, yet still managed to close 2014 with a respectable gain of 7.5%. The SEG Internet Index posted the greatest 2014 decline in median stock return among our six tracking indices. In 1Q14, our Internet Index performance remained relatively flat, only to plunge dramatically in the second quarter. The SEG Internet Index failed to recover in Q3 and Q4, closing % lower than a year earlier, the worst performance among our three software industry tracking indices. The SEG Software Index, consisting largely of mature, profitable software providers remained even, finishing the third quarter only 0.4%, lower, after declining by 8.4% in May, its lowest point for the year. The SEG SaaS Index declined 5% in 2014, perhaps because of investors taking profits after a prolonged period of strong returns from high beta/growth public SaaS companies which drove valuations to historically high levels, and/or perhaps because investors were disappointed with the failure of SaaS providers to recapture pre-recession 40%+ growth rates. 13

14 THE SEG SOFTWARE INDUSTRY FINANCIAL REPORT PUBLIC SOFTWARE COMPANY FINANCIAL PERFORMANCE AND MARKET MULTIPLE TRENDS

15 THE SEG SOFTWARE INDEX The SEG Software Index tracks public software companies that primarily offer on-premise software under a perpetual license with annual M&S. The SEG Software Index is currently comprised of 140 public software companies. The number of public companies comprising the SEG Software Index has declined significantly (from ~465) and steadily over the past 15 years, as a wide array of on premise providers have migrated to a SaaS business model. 15

16 TTM Total Revenue TTM Revenue Growth THE SEG SOFTWARE INDEX: FINANCIAL PERFORMANCE Median TTM Total Revenue ($M) - Annual Median Revenue Growth - Annual $387.9 $381.4 $470.5 $ % 13.3% $ % 8.0% 4.2% 4.5% On an annualized basis, the median TTM revenue growth rate of public on premise software providers was 8.0% in 2014, the slowest growth rate infour years. Public on premise software companies were hard hit by the Great Recession, primarily as a result of severe cutbacks in enterprise IT spending, resulting in anemic median TTM revenue growth rates of 4.2% and 4.5% in 2009 and 2010, respectively. Pent up demand, soaring stock prices and optimism about a near term recovery spurred IT spending in 1H11, but the surge dissipated in the second half and has remained lackluster since. We expect on premise software growth rates will see further decline, absent a significant uptick in capital IT spending by larger enterprises, which is not expected. Despite the tepid TTM growth rate, the median TTM revenue of the SEG Software Index reached $535.8M in 4Q14, the highest in history, and the highest among our three tracking indices. We attribute much of that growth to consolidated revenue from mergers and acquisitions, and revenue model optimization. 16

17 TTM Total Revenue TTM Revenue Growth % of Companies THE SEG SOFTWARE INDEX: FINANCIAL PERFORMANCE Median Revenue Performance Quarterly TTM Revenue Growth Rate Distribution 4Q14 TTM Total Revenue ($M) TTM Revenue Growth 33% $ % $500 $400 $300 $200 $ % 8.5% 8.0% 7.5% 21% 21% 11% 5% 8% $0 4Q13 1Q14 2Q14 3Q14 4Q14 7.0% <= 0% > 0% <= 10% > 10% <= 20% > 20% <= 30% TTM Revenue Growth > 30% <= 40% > 40% When assessed on a quarterly basis, the median TTM revenue growth of public on premise software providers reveals a troubling trajectory that does not portend well for the future. Q4 was the fifth consecutive quarter of decelerated growth for public on premise software providers. More than one infive reported negative growth. 13% of on-premise software providers reported TTM revenue growth rates of 30% or more in 4Q14. Most were focused on three of 2014 s hottest product categories, Mobility (NQ Mobile), Security (Palo Alto Networks), and Systems Management (Solarwinds). 17

18 Gross Profit Margin EBITDA Margin THE SEG SOFTWARE INDEX: FINANCIAL PERFORMANCE Median Gross Profit Margin Annual Median EBITDA Margin Annual 66.0% 66.5% 66.6% 68.6% 65.8% 66.1% 66.5% 66.0% 15.3% 17.4% 18.9% 17.9% 17.5% 17.6% 13.0% 11.2% The median gross margin of public on premise providers was 66.0% in 2014, consistent with historic levels. During the economic downturn, most public on premise companies shifted focus from unattainable revenue growth to EBITDA, which improved each year from 2007 to 2011, when it topped out at 18.9%. As economic woes eased, on premise providers began to invest more heavily in sales, marketing and R&D and, concomitantly, the median EBITDA margin declined modestly to ~17.5% for the past two years. We anticipate EBITDA margins will continue to experience modest decline in 2015, as on-premise providers increase spending on sales and marketing and invest more in R&D to update legacy products and expand their SaaS offerings. 18

19 TTM EBITDA Margin TTM Revenue Growth % of Companies THE SEG SOFTWARE INDEX: FINANCIAL PERFORMANCE Median EBITDA Margin Performance Quarterly TTM EBITDA Margin Distribution 4Q14 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% EBITDA Margin TTM EBITDA Growth 4Q13 1Q14 2Q14 3Q14 4Q14 Viewed on a quarterly basis, the median EBITDA margin of public on-premise software companies remained relatively steady throughout last year, closing 4Q14 at 17.0%. 8% 7% 6% 5% 4% 3% 2% 1% 0% 21% 12% <= 0% > 0% <= 10% 26% > 10% <= 20% 24% > 20% <= 30% TTM EBITDA Margin 13% > 30% <= 40% 4% > 40% 50% of public on-premise software providers were modestly to moderately profitable, posting EBITDA margins between 10% and 30%. Only 4% of on-premise software companies achieved EBITDA margins of 40%+; most were larger companies with little or negative growth that generated significant, lower cost revenue from their installed base (e.g., Oracle 3.3% revenue growth, CheckPoint 6.3% revenue growth, Ansys, 8.5% revenue growth) 19

20 % of Revenue % Margin THE SEG SOFTWARE INDEX: FINANCIAL PERFORMANCE Median Operating Ratios Quarterly Median Margin Performance Quarterly S&M (% of Revenue) R&D (% of Revenue) G&A (% of Revenue) Gross Profit Margin EBITDA Margin Net Income Margin 30% 80% 25% 20% 70% 60% 50% 15% 40% 10% 5% 30% 20% 10% 0% 4Q13 1Q14 2Q14 3Q14 4Q14 0% 4Q13 1Q14 2Q14 3Q14 4Q14 Median spending on operations by public on-premise software companies in Q4 was consistent with historic norms: 16.2% for Research & Development, 23.5% for Sales & Marketing, and 10.3% forgeneral & 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 as a percent of total revenue by onpremise public software companies lagged far behind their SaaS counterparts, which continued to place significant bets on new customer acquisition (39.7% for SaaS,and 23.5% for onpremise). In 4Q14, the median gross profit of public on premise software companies was 66%; EBITDA was 17%; and net income was 8.6%. Several on-premise providers achieved gross profit margins of 90% or greater, including Sage Group (94.3%); Progress Software (91.2%); and Varonis Systems (90.3%). As predicted in last year s Annual Report, EBITDA margins declined modestly throughout 2014, as on premise companies ramped spending on S&M, R&D and SaaS migration. We expect this trend will continue in

21 EV/Revenue Multiple EV/EBITDA Multiple THE SEG SOFTWARE INDEX: PUBLIC MARKET MULTIPLES Median EV/Revenue Annual Median EV/EBITDA Annual 3.0x 3.0x 14.1x 14.0x 15.0x 2.7x 2.7x 11.7x 12.4x 12.3x 11.9x 2.3x 2.3x 10.0x 1.7x 1.5x Ignoring the faltering financial performance of most publicly listed on premise software providers, investors drove the trading multiples of many to a seven year high. After plunging to 1.5x in 2009, median EV/Revenue multiples for public on-premise software companies climbed steadily to 3.0x by the close of Their median EV/ EBITDA multiple reached 15x, a seven year high. Investors in 2014 were clearly betting on the ability of on premise providers to capitalize on their immense customer base as the economy improves, as well as the promise of greater recurring revenue from a growing number of hosted solution subscriptions. Adobe is an excellent example. As the company converts to a SaaS model, its revenue growth rate has rapidly decelerated (from 29.0% in 2010, to 11.0% in 2011, to 4.4% in 2012, to -7.9% in 2013, and 2.3% in 2014), yet its EV/Revenue multiple has grown from 2.9x to 8.1x over the same period due to its steadily growing recurring revenue. 21

22 Median Multipe Median EV/Revenue THE SEG SOFTWARE INDEX: PUBLIC MARKET MULTIPLES Median EV/Revenue and EV/EBITDA Multiples Quarterly EV/Revenue Multiples by Size (TTM Revenue) Quarterly EV/Revenue EV/EBITDA 15.9x 14.8x 15.8x 15.9x 15.2x 3.3x 3.0x 3.1x 2.9x 2.9x 4Q13 1Q14 2Q14 3Q14 4Q14 Revenue Greater Than $1 billion Revenue Between $500 million & $1 billion Revenue Between $100 million & $500 million Revenue Less Than $100 million 4.0x 3.5x 3.0x 2.5x 2.0x 1.5x 1.0x 0.5x 0.0x 4Q13 1Q14 2Q14 3Q14 4Q14 Viewed quarter-by-quarter, the median EV/Revenue multiple for on-premise software providers held mostly steady throughout 2014, ending Q4 at 2.9x. Though the median EV/EBITDA multiple of public on premise software companies fluctuated over the course of the year and declined at year end. Q4 s median multiple of 15.2x was still greater than any quarter from Q13. Throughout 2014, the EV/Revenue multiples of on-premise software companies with revenues <$100 million remained markedly lower than their larger >$100 million counterparts. SEG Software Index companies with TTM revenue between $500M and $1B successfully balanced TTM revenue growth (median 8.5%) and profitability (median EBITDA of 13.5%), and were rewarded with the highest median EV/Revenue multiples. 22

23 Median EV/Revenue Median EV/Revenue THE SEG SOFTWARE INDEX: PUBLIC MARKET MULTIPLES EV/Revenue Multiples vs. TTM Revenue Growth 4Q14 EV/Revenue Multiples vs. TTM EBITDA Margins 4Q14 3.6x 3.8x 4.0x 6.6x 2.8x 3.1x 1.9x 1.6x 1.9x 2.6x 3.4x 3.5x <= 0% > 0% <= 10% > 10% <= 20% > 20% <= 30% TTM Revenue Growth > 30% <= 40% > 40% <= 0% > 0% <= 10% > 10% <= 20% > 20% <= 30% TTM EBITDA Margin > 30% <= 40% > 40% In a departure from prior quarters, market valuations of SEG Software Index companies did not correspond closely to their TTM revenue growth rates. Public on-premise software companies with revenue growth rates greater than 40% were penalized by investors with a median EV/Revenue multiple of 3.1x. Most likely, investors feared the inability of these providers to deliver, scale and sustain the growth. Members of Q4 s 40%+ growth club included: Redknee (81.4%), Take-Two Interactive (129%), NQ Mobile (95.4%), King Digital (73.1%), Glu Mobile (90.7%). Investors in 4Q 2014 continued to place a premium on the bottom line of on premise software companies, rewarding those with TTM EBITDA margins greater than 20% with markedly higher market multiples than their less profitable counterparts. Investors in Q4 took special note of on-premise providers with EBITDA margins greater than 40%, conferring upon them a SaaS-like median EV/Revenue multiple of 6.6x. 23

24 THE SOFTWARE INDEX: BY PRODUCT CATEGORY The SEG Software Index is segmented into 16 product categories As in prior quarters, market valuations in 2014 varied significantly by product category For a list of companies in each product category, please see the Appendix to this Report Category SEG Software Index EV/Revenue EV/EBITDA TTM Revenue Growth EBITDA Margin 4Q13 1Q14 2Q14 3Q14 4Q14 4Q13 1Q14 2Q14 3Q14 4Q14 4Q13 1Q14 2Q14 3Q14 4Q14 4Q13 1Q14 2Q14 3Q14 4Q14 Billing & Service Management 3.0x 2.2x 1.9x 2.0x 1.8x 9.4x 10.2x 11.2x 9.6x 9.4x 4.4% 3.6% 4.8% 8.2% 12.9% 18.6% 18.5% 18.4% 21.1% 26.1% Business Intelligence 3.1x 3.2x 3.0x 3.3x 3.2x 16.3x 14.8x 16.9x 15.8x 14.4x 7.5% 10.2% 13.3% 14.2% 12.5% 16.2% 15.9% 15.8% 14.4% 12.6% Development Platforms 2.2x 2.1x 1.6x 1.5x 1.6x 10.9x 9.7x 10.1x 21.7x 9.9x 2.3% -0.6% -1.8% 0.0% 1.6% 20.0% 19.6% 19.2% 19.0% 19.0% Engineering & PLM 3.9x 3.8x 4.2x 3.4x 3.3x 15.8x 15.2x 15.9x 15.9x 15.4x 6.8% 7.1% 7.2% 6.9% 6.2% 20.5% 20.7% 19.9% 19.5% 19.4% Enterprise Resource Planning 3.7x 3.6x 3.4x 3.1x 3.3x 12.8x 12.3x 11.7x 10.6x 11.5x 2.7% 2.0% 2.7% 3.0% 2.9% 29.1% 29.3% 29.5% 29.0% 28.4% Financial & Accounting 3.7x 3.6x 3.4x 3.2x 3.3x 14.7x 15.1x 14.0x 14.1x 13.8x 10.7% 8.5% 4.7% 2.5% 6.1% 26.7% 25.9% 25.6% 26.0% 25.2% Gaming 1.7x 1.9x 1.5x 1.2x 1.3x 13.0x 11.4x 12.1x 9.8x 10.0x 10.7% -3.6% -4.8% 0.2% 3.1% 13.6% 17.7% 15.9% 15.5% 19.2% Healthcare 2.5x 2.3x 2.3x 2.4x 2.4x 15.6x 14.5x 14.1x 16.3x 14.6x 3.1% 3.0% 0.1% 1.1% 3.2% 16.8% 15.0% 14.1% 14.1% 16.6% IT Conglomerates 3.1x 3.2x 3.7x 3.6x 3.6x 8.5x 8.9x 9.6x 9.6x 9.5x 0.9% 2.0% 2.7% 2.2% 2.9% 33.2% 34.2% 34.4% 34.5% 35.1% Mobile Solutions/Content 3.7x 2.8x 3.5x 3.5x 3.2x 19.9x 29.7x 26.6x 20.2x 18.5x 27.3% 24.9% 17.9% 21.1% 22.0% 6.3% 3.7% 2.5% -0.3% 0.7% Networking & Network Performance Management 3.4x 3.1x 2.7x 2.3x 2.3x 18.6x 15.7x 18.9x 18.0x 16.8x 7.6% 11.6% 10.1% 10.8% 15.4% 3.0% 1.7% 2.3% 4.4% 7.0% Security 4.2x 3.3x 3.5x 5.4x 5.0x 14.1x 10.7x 15.1x 16.9x 16.6x 17.0% 17.5% 16.5% 15.2% 18.9% 2.4% 10.6% 10.9% 12.5% 7.6% Storage, Data Management & Integration 2.6x 2.4x 2.5x 2.6x 2.6x 9.5x 8.0x 8.9x 9.1x 9.1x 4.6% 4.1% 2.9% 2.1% 3.1% 16.9% 17.8% 18.0% 17.7% 17.5% Systems Management 5.2x 4.6x 5.3x 4.6x 4.4x 19.2x 17.8x 20.0x 18.2x 18.5x 15.3% 13.0% 13.3% 15.8% 16.2% 24.2% 25.9% 25.7% 25.3% 25.0% Vertical - Finance 4.5x 4.3x 4.5x 4.4x 4.4x 13.9x 13.4x 13.5x 13.7x 13.8x 6.8% 8.2% 8.1% 6.3% 5.6% 26.0% 26.7% 26.8% 29.3% 29.9% Vertical - Other 3.3x 3.3x 3.5x 3.9x 3.7x 24.4x 25.7x 26.5x 28.3x 27.0x 24.9% 21.2% 21.2% 16.6% 16.5% 13.8% 12.9% 11.3% 11.6% 11.8% Median 3.3x 3.0x 3.1x 2.9x 2.9x 15.9x 14.8x 15.8x 15.9x 15.2x 9.0% 8.7% 8.6% 8.1% 7.8% 17.5% 17.2% 17.0% 16.6% 17.0% 24

25 THE SEG SOFTWARE INDEX BY PRODUCT CATEGORY: FINANCIAL PERFORMANCE 4Q14 Median TTM Revenue Growth 4Q14 YoY Change in Median Revenue Growth Billing & Service Management Business Intelligence Development Platforms Engineering & PLM Enterprise Resource Planning Financial & Accounting Gaming Healthcare IT Conglomerates Mobile Solutions/Content Networking & Network Performance Security Storage, Data Management & Integration Systems Management Vertical - Finance Vertical - Other 1.6% 6.2% 2.9% 6.1% 3.1% 3.2% 2.9% 3.1% 5.6% 12.9% 12.5% 22.0% 15.4% 18.9% 16.2% 16.5% Billing & Service Management Business Intelligence Development Platforms Engineering & PLM Enterprise Resource Planning Financial & Accounting Gaming Healthcare IT Conglomerates Mobile Solutions/Content Networking & Network Performance Security Storage, Data Management & Integration Systems Management Vertical - Finance Vertical - Other (30.9%) (8.1%) (42.7%) (71.0%) (19.2%) (32.9%) (18.5%) (33.6%) 66.0% 6.4% 2.7% 104.1% 10.7% 5.9% 196.2% 229.6% 4Q14 Median TTM EBITDA Margin 4Q14 YoY Change in Median EBITDA Margin Billing & Service Management Business Intelligence Development Platforms Engineering & PLM Enterprise Resource Planning Financial & Accounting Gaming Healthcare IT Conglomerates Mobile Solutions/Content Networking & Network Performance Security Storage, Data Management & Integration Systems Management Vertical - Finance Vertical - Other 0.7% 7.0% 7.6% 26.1% 12.6% 19.0% 19.4% 28.4% 25.2% 19.2% 16.6% 35.1% 11.8% 17.5% 25.0% 29.9% Billing & Service Management Business Intelligence Development Platforms Engineering & PLM Enterprise Resource Planning Financial & Accounting Gaming Healthcare IT Conglomerates Mobile Solutions/Content Networking & Network Performance Security Storage, Data Management & Integration Systems Management Vertical - Finance Vertical - Other (22.3%) (5.0%) (5.5%) (2.4%) (5.5%) (1.0%) 5.8% 40.5% 40.8% (88.2%) 137.5% (14.8%) 3.6% 3.3% 15.0% 217.2% 25

26 THE SEG SOFTWARE INDEX BY PRODUCT CATEGORY: PUBLIC MARKET MULTIPLES 4Q14 Median EV/Revenue Multiples Median 4Q14 YoY Change in EV/Revenue Billing & Service Management Business Intelligence Development Platforms Engineering & PLM Enterprise Resource Planning Financial & Accounting Gaming Healthcare IT Conglomerates Mobile Solutions/Content Networking & Network Performance Security Storage, Data Management & Integration Systems Management Vertical - Finance Vertical - Other 1.3x 1.8x 1.6x 2.4x 2.3x 2.6x 3.2x 3.3x 3.3x 3.3x 3.6x 3.2x 4.4x 4.4x 3.7x 5.0x Billing & Service Management (37.8%) Business Intelligence Development Platforms (27.9%) Engineering & PLM (14.2%) Enterprise Resource Planning (11.5%) Financial & Accounting (11.5%) Gaming (23.5%) Healthcare (2.1%) IT Conglomerates Mobile Solutions/Content (12.3%) Networking & Network Performance (33.7%) Security Storage, Data Management & Integration (3.0%) Systems Management (15.6%) Vertical - Finance (4.0%) Vertical - Other 6.0% 13.9% 21.1% 12.3% In 4Q14, ten product categories surpassed the overall SEG Software Index of 2.9x: Security (5.0x), Vertical Finance (4.4x), Systems Mgmt (4.4x), Financial & Accounting (3.3x), Vertical Other (3.7x), Engineering & PLM (3.3x), ERP (3.3x), Mobile Solutions (3.2x), Business Intelligence (3.2x), IT Conglomerates (3.6x) While all but two on premise product categories saw their YoY EV/Revenue multiple grow by year end 2013, only four categories managed to do so in 4Q14: Security (21.1%), IT Conglomerates (13.9%), Vertical-Other (12.3%) and Business Intelligence (6.0%). Security, with the second highest TTM revenue growth rate of any on premise product category (18.9%), drove its YoY median EV/Revenue multiple from 4.2x to 5.0x in Not all categories fared as well: Although the median TTM revenue growth of Networking & Network Performance Management software providers increased from 7.6% in Q1 to 15.4% in Q4, their median market multiple plummeted to 2.3x from 3.4x EV/Revenue during the same period. The Gaming and Development platforms categories posted the lowest EV/Revenue multiples in 4Q14, 1.3x and 1.6x, respectively. due to slowed growth. 26

27 THE SEG SaaS INDEX PUBLIC SaaS COMPANY FINANCIAL PERFORMANCE AND MARKET MULTIPLE TRENDS

28 THE SEG SaaS INDEX The SEG SaaS Index tracks public companies that primarily offer hosted, on-demand software under a subscription and/or transaction based pricing model. The SEG SaaS Index is currently comprised of 57 publicly traded, pure-play SaaS companies*. * See Appendix for complete list of companies in the SEG SaaS Index 28

29 TTM Revenue Growth TTM Total Revenue THE SEG SaaS INDEX: FINANCIAL PERFORMANCE Median Revenue Growth - Annual Median TTM Total Revenue ($M) - Annual 26.0% 26.9% 25.5% 26.0% 28.4% $155.4 $169.0 $163.5 $123.7 $128.7 $ % After achieving a median TTM growth rate of 51% in 2007, SaaS providers were hit hard by the recession. By 2010 the median TTM revenue growth of the SEG SaaS index had plummeted to 14.2%, before regaining some traction in 2011 and hovering around 26% during the following two years showed further improvement, with public SaaS companies posting a median 28.4% growth rate Median TTM revenue in 2014 fell to $128.7M from $163.5M in 2013, primarily due to two contributing factors: First, several larger SaaS providers were acquired, including Concur ($668M TTM revenue) and OpenTable ($198M TTM revenue); Second, eight newly listed SaaS providers, with median TTM revenue of ~$73 million, joined our Index. On a revenue basis, Salesforce continues to dominate the SaaS Sector with TTM revenue of $5.1B, nearly 7x greater than the next largest public SaaS company. That said, an impressive number of public SaaS companies, spanning an array of product categories and vertical markets, have reached critical revenue mass (>350 million), a feat made more difficult by a subscription revenue model that requires deferral of a significant portion of booked revenue.. Examples of SaaS players that have come of age include DealerTrack (automotive, $743M TTM revenue); Athenahealth (healthcare, $710M), Workday (human capital management, $703M); ServiceNow (IT automation, $609M); Ultimate Software (human capital management, $482M), and RealPage (real estate, $395M). Impressively, median public SaaS company growth rates have exceeded 25% for four consecutive years. 29

30 % of Companies TTM Total Revenue TTM Revenue Growth THE SEG SaaS INDEX: FINANCIAL PERFORMANCE TTM Revenue Growth Rate Distribution 4Q14 Median Revenue Performance Quarterly 4% 8% 20% 20% 18% 6% 22% $160 $140 $120 $100 $80 $60 $40 $20 TTM Total Revenue ($M) TTM Revenue Growth 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% <= 0% > 0% <= 10% > 10% <= 20% > 20% <= 30% > 30% <= 40% TTM Revenue Growth > 40% <= 50% > 50% $0 4Q13 1Q14 2Q14 3Q14 4Q14 0.0% On a quarterly basis, Public SaaS companies reported median TTM revenue growth of 31.9% in Q1, but growth slowed during the following two quarters before regaining ground and closing Q4 with a median growth rate of 28.4%. We expect the median TTM revenue growth rate of public SaaS companies will reach or exceed 35% by year end 2015, thanks to accelerating SaaS adoption among large enterprises and SMBs, but only if 2015 GDP growth approaches or exceeds 4.5% - 5%. Although most struggled to recapture pre-recession growth rates of 40%+, more than one in five public SaaS companies grew TTM revenue 50% or more YoY. These overachievers hailed from a wide array of product categories, including expense management, security, business intelligence and automotive, further affirming the widespread adoption of SaaS in enterprise, SMB and vertical markets. Kudos to Castlight Health (295.4%), FireEye (150%), Workday (72.2%) and Truecar (62.8%). The median TTM revenue of public SaaS companies was $133.6M in 4Q14, a YoY increase of 29% over 4Q13 s $103.6M. 30

31 Gross Profit Margin EBITDA Margin THE SEG SaaS INDEX: FINANCIAL PERFORMANCE Median Gross Profit Margin Annual Median EBITDA Margin Annual 68.3% 68.6% 70.9% 70.0% 5.5% 6.7% 9.6% 8.8% 8.1% 66.1% 1.0% 63.4% % The median gross profit of public SaaS companies declined to 66.1% in 2014, almost 4% lower than a year earlier. Here, too, the decline in median gross profit of public SaaS companies was primarily attributable to the addition of eight newly public SaaS companies to our SaaS index that are serving smaller numbers of customers and carrying disproportionately higher infrastructure and application delivery costs, as a percent of revenue, compared to their larger SaaS peers. Unsurprisingly, after reaching a historical peak of 9.6% in 2010, the median SaaS Index EBITDA margin has now declined for four consecutive years, plunging to -8.9% in It would be wrong to assess the financial health of public SaaS companies based upon their GAAP compliant P&L statements. In truth, many are not only cash flow positive, but flush with cash from prepaid subscription fees. As an example, Salesforce reported -$313.5M in net income, yet generated $1.1B of cash from operations in the year ending 10/31/2014; Workday reported -$244.5M in net income, yet generated $88.5M of cash from operations in the year ending 12/31/2014; ServiceNow reported -$179.4M in net income, yet generated $138.9M of cash from operation in the year ending 10/31/

32 EBITDA Margin % of Companies THE SEG SaaS INDEX: FINANCIAL PERFORMANCE Median EBITDA Margin Performance Quarterly TTM EBITDA Margin Distribution 4Q14 4Q13 1Q14 2Q14 3Q14 4Q14 59% (8.7%) (8.1%) (8.9%) (9.9%) 23% 9% 5% 4% (12.8%) <= 0% > 0% <= 10% > 10% <= 20% TTM EBITDA Margin > 20% <= 30% > 30% The median EBITDA margin of public SaaS companies declined steadily throughout 2014, reaching a low of -12.8% in 4Q14. Over half (59%) of public SaaS companies are unprofitable, and roughly nine out of ten have EBITDA margins below the 17% median of their on-premise software peers. And for the time being, that s just what investors want, if the sharp increase in the median SaaS EV/EBITDA market multiple (see slide 34) is any indication. 32

33 % of Revenue % Margin THE SEG SaaS INDEX: FINANCIAL PERFORMANCE Median Operating Ratios Quarterly Median Margin Performance Quarterly S&M (% of Revenue) R&D (% of Revenue) G&A (% of Revenue) Gross Profit Margin EBITDA Margin Net Income Margin 45% 40% 35% 30% 25% 20% 65% 55% 45% 35% 25% 15% 15% 10% 5% 0% 4Q13 1Q14 2Q14 3Q14 4Q14 5% -5% -15% -25% 4Q13 1Q14 2Q14 3Q14 4Q14 With market adoption of hosted software solutions ramping across enterprise, SMB and vertical markets, public SaaS companies continued to spend heavily on sales & marketing in order to drive revenue growth and capture market share. In 4Q14, public SaaS companies invested a median 39.7% of total revenue on sales & marketing, almost 69% more than their on-premise counterparts. R&D spending as a percent of revenue remained almost flat in 2014, inching up to 20.5% in 4Q14 from 20.3% a year earlier. Public SaaS companies in 2014 spent 26% more on R&D as a percent of revenue then their on premise peers, as they endeavored to expand their offerings, enhance their technology and platforms, and address new markets. 33

34 Median EV/Revenue Multiple Median EV/EBITDA Multiple THE SEG SaaS INDEX: PUBLIC MARKET MULTIPLES Median EV/Revenue Annual Median EV/EBITDA Annual 56.8x 6.7x 4.5x 5.0x 5.7x 36.9x 31.4x 32.2x 35.2x 35.2x 42.4x 3.3x 2.6x 3.6x The median stock performance of public companies comprising the SEG SaaS Index improved steadily during the economic recovery, from 2.6x EV/Rev in 2009 to a whopping 6.7x EV/Rev in In 2014, the median market value of public SaaS companies retreated to 5.7x EV/Revenue. Despite 2014 s decline in the median EV/Rev market multiple of public SaaS companies, and the relatively unchanged median market value of public on premise software companies during the same period, the former group was valued at a 90% premium over the latter (5.7x vs. 3.0x) at the close of 4Q14. The stunning growth over the past five years in the median EV/Revenue multiple of our SaaS Index reflects investor appetite for companies with huge upside, 25%+ annual revenue growth, substantial recurring revenue, and an M&A feeding frenzy targeting smaller, rapidly growing public SaaS companies. 34

35 Median Multiple % of Companies THE SEG SaaS INDEX: PUBLIC MARKET MULTIPLES Median EV/Revenue and EV/EBITDA Multiples Quarterly EV/Revenue Multiple Distribution 4Q14 EV/Revenue EV/EBITDA 51.1x 53.9x 56.5x 66.1x 61.8x 24% 24% 13% 9% 7% 9% 9% 8.1x 6.6x 6.3x 6.2x 5.6x 2% 2% 2% 4Q13 1Q14 2Q14 3Q14 4Q14 <= 1.0x > 1.0x <= 2.0x > 2.0x <= 3.0x > 3.0x <= 4.0x > 4.0x <= 5.0x > 5.0x <= 6.0x EV/Revenue > 6.0x <= 7.0x > 7.0x <= 8.0x > 8.0x <= 9.0x > 9.0x On a quarterly basis, the median EV/Revenue multiple of the SEG SaaS Index closed 4Q14 at 5.6x EV/Rev, almost 30% lower than a year earlier, when investor optimism about economic growth was high. SaaS valuations retreated with the overall market in 2014, weighed down by slower than expected GDP growth in the first two quarters, declining commodity prices, ongoing economic perturbation in Europe, Japan and elsewhere, and geopolitics. Investors have become more sophisticated when placing their SaaS bets, often favoring the next wave of SaaS category leaders that are positioned to displace incumbent on-premise providers across multiple product categories, just as Salesforce did Siebel in the CRM market. Almost one of every four public SaaS companies achieved a 9x or higher median EV/Revenue multiple in 4Q14, compared to 51% in 4Q13, mostly due to 2014 s softened market valuations. 35

36 THE SEG SaaS INDEX: PUBLIC MARKET MULTIPLES TTM Revenue Growth EV/ EBITDA Company Ticker EV (Median) TTM Revenue EV/ Revenue TTM EBITDA EBITDA Margin Castlight Health CSLT $893 $ % 24.6x -$ % - HortonWorks HDP $948 $ x -$ % - Workday WDAY $14,415 $ % 20.5x -$ % - New Relic NEWR $1,386 $ x -$ % - Netsuite N $7,911 $ % 15.4x -$45-8.7% - Zendesk ZEN $1,630 $ x -$ % - Tableau Software DATA $5,012 $ % 14.3x $11 3.2% 449.4x Demandware DWRE $1,793 $ % 12.6x -$ % - FireEye FEYE $4,197 $ % 12.3x -$ % - HubSpot HUBS $1,149 $ x -$ % - Paylocity Holding PCTY $1,219 $ % 10.4x -$6-5.1% - Marketo MKTO $1,190 $ % 8.8x -$ % - Qualys QLYS $1,038 $ % 8.2x $ % 62.4x Salesforce.com CRM $38,578 $5, % 7.6x $87 1.7% 442.4x Cornerstone OnDemand CSOD $1,769 $ % 7.3x -$ % - Ellie Mae ELLI $1,058 $ % 7.3x $ % 40.3x Q2 Holdings QTWO $528 $ % 7.3x -$ % - TrueCar NasdaqGS: TRUE$1,388 $ % 7.3x -$ % - Cvent CVT $935 $ % 7.0x $8 5.8% 121.2x Athenahealth ATHN $4,800 $ % 6.8x $59 8.3% 80.9x 2U TWOU $639 $ % 6.1x -$ % - Callidus Software CALD $727 $ % 5.6x -$2-1.4% - OPOWER OPWR $672 $ % 5.6x -$ % - SciQuest SQI $291 $ % 5.5x $5 4.6% 61.8x Fleetmatics FLTX $1,197 $ % 5.5x $ % 24.0x Yodlee YDLE $453 $84-5.4x $4 5.0% 108.3x Workiva WK $533 $ x -$ % - Benefitfocus BNFT $632 $ % 5.0x -$ % - J2 Global JCOM $2,634 $ % 4.6x $ % 11.1x ChannelAdvisors ECOM $365 $ % 4.5x -$ % - RealPage RP $1,658 $ % 4.2x $35 8.9% 47.1x Amber Road AMBR $258 $ % 4.1x -$ % - DealerTrack TRAK $3,016 $ % 4.1x $ % 31.2x RingCentral RNG $724 $ % 3.6x -$ % - Zix ZIXI $174 $50 4.8% 3.5x $ % 17.1x LivePerson LPSN $665 $ % 3.3x $10 5.1% 65.7x 2U TWOU $586 $ % 3.3x -$ % - incontact SAAS $490 $ % 3.1x -$7-4.5% - Ebix EBIX $604 $ % 3.0x $ % 7.6x Bazaarvoice BV $517 $ % 2.9x -$ % - Constant Contact CTCT $911 $ % 2.9x $ % 24.6x Medical Transcript MTBC $37 $ % 2.6x $0 0.1% x IntraLinks Holdings IL $613 $ % 2.4x $8 3.1% 79.4x Marin Software MRIN $223 $ % 2.4x -$ % - Halogen Software TSX:HGN $126 $ % 2.3x -$8-14.8% - Rally Software Development RALY $183 $ % 2.2x -$ % - E2open EOPN $169 $ % 2.2x -$ % - Jive Software JIVE $329 $ % 1.9x -$ % - Covisint COVS $60 $92-6.4% 0.7x -$ % - Top 25% Bottom 25% When ranked by EV/Rev market multiple, the top 25% of companies in the SEG SaaS Index had a median market valuation of 12.5x. These SaaS high flyers are market leaders in an array of SaaS product categories, including security (FireEye), HCM/Finance (Workday), business intelligence (Tableau), ERP (NetSuite), ecommerce (Demandware), and Marketing (Marketo). SaaS providers comprising the top 25% of SaaS market multiple had a median TTM revenue growth rate of 50.3%. All but one (Qualys) had negative EBITDA margins in 4Q14. In contrast, public SaaS companies comprising the bottom 25% of SaaS market multiples posted a median EV/Revenue of only 2.3x. Of these, the median TTM revenue growth rate was 18.2%. 36

37 Median EV/Revenue Median EV/Revenue THE SEG SaaS INDEX: PUBLIC MARKET MULTIPLES EV/Revenue Multiples vs. TTM Revenue Growth 4Q14 EV/Revenue Multiples vs. TTM EBITDA Margins 4Q x 7.3x 8.4x 5.5x 6.1x 7.3x 5.9x 5.4x 3.8x 3.3x 2.9x 0.0x <= 0% > 0% <= 10% > 10% <= 20% > 20% <= 30% TTM Revenue Growth > 30% <= 40% > 40% <= 50% > 50% <= 0% > 0% <= 10% > 10% <= 20% TTM EBITDA Margin > 20% <= 30% > 30% In 2014, as in prior years, there was a very strong correlation between the median TTM revenue growth rate and median EV/Revenue multiple of public SaaS companies. Except for those with TTM revenue growth >10% and <20%, the median market multiple of public SaaS companies increased with every 10% increase in the TTM revenue growth rate, and soared to 11.9x for those that were able to achieve TTM revenue growth greater than 50% in While investors deemed modest profitability (TTM EBITDA margins >10% - < 30%) to be acceptable, they perceived an EBITDA greater than 30% to have come at the expense of growth. Unprofitable public SaaS companies boasted a rather remarkable median EV/Revenue multiple of 5.9x in 4Q13, compared to a market multiple of only 3.8x for public SaaS providers with EBITDA margins above 30%. 37

38 THE SEG SaaS INDEX BY PRODUCT CATEGORY: FINANCIAL PERFORMANCE 4Q14 Median TTM Revenue Growth 4Q14 YoY Change in Median Revenue Growth CRM & Marketing 28.4% CRM & Marketing 19.5% ERP & Supply Chain 30.6% ERP & (20.2%) Supply Chain Vertically Focused Workforce Management 31.8% 38.1% Vertically Focused Workforce Management (25.4%) 46.0% 4Q14 Median TTM EBITDA Margin 4Q14 YoY Change in Median EBITDA Margin CRM & Marketing (15.1%) CRM & Marketing (34.3%) ERP & Supply Chain (8.7%) ERP & Supply Chain 1.6% Vertically Focused 7.9% Vertically Focused (28.1%) Workforce Management (14.8%) Workforce Management 45.8% 38

39 THE SEG SaaS INDEX BY PRODUCT CATEGORY: PUBLIC MARKET MULTIPLES 4Q14 Median EV/Revenue Multiple 4Q14 YoY Change in Median EV/Revenue CRM & Marketing 7.0x CRM & Marketing 91.6% ERP & Supply Chain 5.5x ERP & Supply Chain (41.8%) Vertically Focused 6.8x Vertically Focused (25.1%) Workforce Management 7.3x Workforce Management (47.8%) Workforce Management was, once again, the most highly valued SaaS product category, racking up a 7.3x median EV/Revenue multiple at year end; SaaS providers focused on the CRM & Marketing category came in a close second, touting a 7.0x median EV/Revenue multiple. Workforce Management s leading position can be largely attributed to a much improved labor market, where an average of more than 200K jobs were added almost every month in 2014 and unemployment fell to 5.7% of the workforce. The ERP and Supply Chain category lagged far behind our other three SaaS tracking categories in median market valuation. While the ERP (Workday and Netsuite) SaaS category has continued to grow revenue and thereby garner a reasonably attractive market valuation, Supply Chain providers SPS Commerce, SciQuest and E2Open experienced more sluggish TTM revenue growth in 2014 (21.9%, 21.6% and 13%, respectively) and their median EV/Rev multiple was a drag on 2014 s overall SaaS median market valuation. 39

40 THE SEG INTERNET INDEX PUBLIC INTERNET COMPANY FINANCIAL PERFORMANCE AND MARKET MULTIPLE TRENDS

41 THE SEG INTERNET INDEX The SEG Internet Index tracks public companies that primarily utilize the Internet to offer B2C and B2B products, services and solutions using a wide array of pricing and delivery models. The SEG Internet Index is currently comprised of 104 public Internet companies*. * See appendix for complete list of companies in the SEG Internet Index 41

42 TTM Total Revenue TTM Revenue Growth THE SEG INTERNET INDEX: FINANCIAL PERFORMANCE Median TTM Total Revenue ($M) - Annual Median Revenue Growth - Annual $392.8 $440.2 $ % 23.9% $278.1 $ % 20.6% $ % 3.4% Approximately 62% of the companies comprising the SEG Internet Index offer online services and solutions primarily to consumers, (Advertising, ecommerce, Gaming, Travel), accounting for their revenue volatility that closely parallels GDP growth and contraction. When GDP growth plummeted 10% in 2009, median TTM revenue growth of the SEG Internet Index sank to 2.9% from 19.5% a year earlier, the steepest decline among our three software tracking indices that year. In 2011, consumer confidence improved markedly amidst signs of an awakening economy, and median TTM revenue growth of the SEG Internet Index spiked to 26.4%. from 3.4%. After declining the following two years as GDP growth faltered, median revenue growth of public Internet companies rose to 20.6% in2014. Despite the improvement in revenue growth, median TTM total revenue of companies comprising our Internet Index declined from $440.4 in 2013 to $411.2 in In part, that can be attributed to the inclusion of eight newly listed Internet companies with median TTM revenue of $194M. Among these 2014 Internet IPOs were Chegg (Internet Commerce), Coupons.com (Internet Ad-Tech & Lead Gen) and GrubHub (Internet Services) Alibaba was the only Internet sector IPO with revenue greater than $300M ($10.2 billion) to join our tracking index in

43 TTM Total Revenue TTM Revenue Growth % of Companies THE SEG INTERNET INDEX: FINANCIAL PERFORMANCE Median Revenue Performance Quarterly TTM Revenue Growth Rate Distribution 4Q14 TTM Total Revenue ($M) TTM Revenue Growth $500 $450 $400 $350 $300 $250 $200 $150 $100 $50 $0 4Q13 1Q14 2Q14 3Q14 4Q % 20.0% 15.0% 10.0% 5.0% 0.0% On a quarterly basis, median TTM revenue growth of the SEG Internet Index was 21% in Q4, up more than 5% YoY. However, the Internet ecosystem remained one of unequals; approximately one in five public Internet providers markedly outperformed their peers, reporting TTM revenue growth greater than 40% in 4Q14. Some of these high flyers were 2014 IPOs that scaled quickly by aggressively offering innovative products and services to a highly receptive target market. Representative examples include LendingClub (130.6%), GrubHub (108.9%) and TubeMogul (104.6%) s quarterly trajectory portends a modest increase in annual TTM revenue growth for most public Internet companies in 2015, provided the 4Q14 decline in GDP growth proves to be an aberration. 18% 12% <= 0% > 0% <= 10% 15% > 10% <= 20% 22% > 20% <= 30% TTM Revenue Growth 10% > 30% <= 40% 23% > 40% 43

44 Gross Profit Margin EBITDA Margin THE SEG INTERNET INDEX: FINANCIAL PERFORMANCE Median Gross Profit Margin Annual Median EBITDA Margin Annual 56.9% 59.1% 60.1% 60.9% 66.2% 65.0% 64.7% 63.8% 14.4% 14.6% 10.2% 12.2% 13.1% 10.6% 8.9% 8.3% During the Great Recession, public Internet providers focused on reducing infrastructure and content costs, resulting in a spike in median gross margin in As the economy regained momentum and median revenue grew, public Internet providers remained cost conscious, developing proprietary content and reducing third party royalties. For example, Yelp, an online service connecting people with local businesses, reported a gross profit margin of 93% in 4Q14, more than double the 45% gross margin of Pandora, an online music streaming service that pays significant royalties to music publishers. Although median gross profit margins have remained relatively stable, EBITDA margins of public Internet companies have declined measurably since 2011 due to the combined impact of: A quest for top line growth by ramping sales and marketing expenses. In 4Q14, the median Sales & Marketing spend of public Internet companies as a percent of total revenue was 25.9%, up from 23.8% in 4Q13. Increased competition, causing many to also ramp R&D spending to remain competitive or retain their installed base and market leadership. In 2014, median public Internet company R&D spending as a percent of total revenue was ~14%, compared to ~10% in A number of 2014 s Internet IPOs eschewed profitability in favor of breathtaking growth, including LendingClub (130.6%), Twitter (118.3%), TubeMogul (104.6%), Wix (81.9%), and Rocket Fuel (81.8%). 44

45 EBITDA Margin % of Companies THE SEG INTERNET INDEX: FINANCIAL PERFORMANCE Median EBITDA Margin Performance Quarterly TTM EBITDA Margin Distribution 4Q14 9.8% 9.0% 8.5% 8.5% 7.8% 35% 23% 20% 9% 9% 5% 4Q13 1Q14 2Q14 3Q14 4Q14 <= 0% > 0% <= 10% > 10% <= 20% > 20% <= 30% TTM EBITDA Margin > 30% <= 40% > 40% On a quarterly basis, the median EBITDA Margin of our Internet Index declined steadily over the past four quarters, to 7.8% in 4Q14 from 9.8% a year earlier, in large part due to increased spending on sales & marketing, as noted earlier. The quest for growth at the expense of profitability dominated the SEG Internet Index in 2014: 23% of public Internet companies reported no profits, and 58% had an EBITDA margin of 10% or less. Conversely, only 5% of public Internet companies achieved EBITDA margins above 40% (compared to about twice as many in 2013), led by VeriSign (61.6%), Facebook (54%), Alibaba (46.5%) and Mail.ru (45.5%). 45

46 % of Revenue % Margin THE SEG INTERNET INDEX: FINANCIAL PERFORMANCE BY QUARTER Median Operating Ratios Quarterly S&M (% of Revenue) R&D (% of Revenue) G&A (% of Revenue) 30% 25% 20% 15% Median Margin Performance Quarterly Gross Profit Margin EBITDA Margin Net Income Margin 75% 65% 55% 45% 35% 10% 25% 5% 0% 4Q13 1Q14 2Q14 3Q14 4Q14 15% 5% -5% 4Q13 1Q14 2Q14 3Q14 4Q14 In 4Q14, companies comprising the SEG Internet Index spent 25.9% of total revenue on sales and marketing (S&M), 13.6% on research development (R&D), and 11.8% on general and administrative (G&A). The median S&M spend as a percent of revenue compares unfavorably to the 39.7% median S&M spend of the SEG SaaS Index, where investors were even more insistent upon growth vs. profitability. The median R&D spend of public Internet companies as a percent of total revenue (13.6%) was the lowest among our three tracking indices. Many Internet companies are able to spend less on development, relative to their on-premise and SaaS peers, by: Leveraging open source stacks and tool kits such as Hadoop and LAMP. Avoiding or minimizing development of expensive, complex and frequently changing APIs and integration tools that many onpremise, and SaaS companies selling to large enterprises must incur. Avoiding costly customized enhancements and product calendar adjustments mandated by large, influential enterprise customers with special needs. Avoiding the expense of maintaining and supporting multiple releases. 46

47 Median EV/REvenue Multiple Median EV/EBITDA Multiple THE SEG INTERNET INDEX: PUBLIC MARKET MULTIPLES Median EV/Revenue Annual Median EV/EBITDA Annual 2.9x 24.6x 2.6x 2.5x 20.8x 2.1x 1.4x 1.2x 1.6x 2.1x 12.6x 11.9x 10.0x 11.8x 15.2x 13.9x The stock performance of the SEG Internet Index, unsurprisingly, closely tracked the performance of the U.S. economy over the past five years. After nose diving in in 2008 and sinking further in 2009, the median EV/Revenue multiple of public Internet companies began to edge up as GDP growth turned positive, soared prematurely in 2011 due to wishful thinking the economy was sharply rebounding, then sank in 2012 when consumer confidence dwindled s median EV/Revenue of 2.6x, and 2014 s slightly lower median market value of 2.5x EV/Revenue reflects guarded optimism about continued GDP growth and its positive impact on consumer spending and online advertising. Public Internet companies experiencing the greatest YoY increase in EV/Rev (market outperformers) include internet infrastructure vendor Limelight Networks (85% increase), Internet Commerce vendors FLOWERS.COM (60.2% increase) and Bitauto Holdings (48.6% increase), Social tech vendor Renren (35.3% increase). 47

48 Median Multiple % of Companies THE SEG INTERNET INDEX: PUBLIC MARKET MULTIPLES Median EV/Revenue and EV/EBITDA Multiples Quarterly Median EV/Revenue Multiple Distribution 4Q14 EV/Revenue EV/EBITDA 23.7x 21.9x 23.5x 22.1x 26.3x 22% 25% 13% 14% 3.6x 3.4x 2.7x 2.4x 2.4x 6% 7% 5% 4% 4% 2% 4Q13 1Q14 2Q14 3Q14 4Q14 <= 1.0x > 1.0x <= 2.0x > 2.0x <= 3.0x > 3.0x <= 4.0x > 4.0x <= 5.0x > 5.0x <= 6.0x EV/Revenue > 6.0x <= 7.0x > 7.0x <= 8.0x > 8.0x >= 9.0x <= 9.0x On a quarterly basis, the median market valuation of public Internet providers fell 33% YoY, declining to 2.4x from 3.6x, largely due to 2014 s more general market correction. The decline in median market valuation was by no means unique to public Internet companies; the median EV/Revenue of our SaaS and Software Indices also declined during the same period, dropping 31% and 12% YoY, respectively. More than any other of our tracking indices, the widely disparate financial performance of the 104 companies comprising the SEG Internet Index reveals an Internet ecosystem heavily bifurcated into haves and have nots. Viral adoption, consumer fickleness, switching ease, unlimited choice and fierce competition handsomely reward a select few and punish many others. 4Q14 served to further exemplify this bifurcation: 47% of companies ended the quarter with an EV/Revenue multiple of 2.0x or less, while 24% closed the quarter with a market multiple of 6.0x EV/Revenue or higher. Among the Internet companies boasting the highest EV/Revenue market multiples by year end 2014 were many relatively recent public market entrants. While some of these star performers had created and were dominating new Internet categories (e.g., Facebook & LinkedIn), others had revolutionized and reshaped older categories and vertical markets (e.g., Alibaba& Zillow). 48

49 Median EV/Revenue Median EV/Revenue THE SEG INTERNET INDEX: PUBLIC MARKET MULTIPLES EV/Revenue Multiples vs. TTM Revenue Growth 4Q14 EV/Revenue Multiples vs. TTM EBITDA Margins 4Q14 9.4x 7.1x 6.9x 6.8x 4.3x 1.0x 1.2x 2.0x 2.2x 1.5x 1.7x 1.8x <= 0% > 0% <= 10% > 10% <= 20% > 20% <= 30% TTM Revenue Growth > 30% <= 40% > 40% <= 0% > 0% <= 10% > 10% <= 20% > 20% <= 30% TTM EBITDA Margin > 30% <= 40% > 40% Expectedly, 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. Among those growing 40%+ were: LendingClub (130.6%), Qihoo (113.8%), GrubHub (108.9%), 58.com (83.8%), and Yelp (66.2%). Unlike The SEG SaaS Index, where TTM EBITDA margins are inversely related to median EV/Revenue multiples, investors in public Internet companies kept a keen eye on margins, and rewarded more profitable performers with significantly higher market multiples. As testament, public Internet companies with EBITDA margins above 40% posted a median EV/Revenue multiple of 6.8x in 4Q14, 183% higher than the overall Index median. By comparison, public SaaS companies with EBITDA margins above 30% (not enough companies with 40%+) posted a median EV/Revenue multiple of 3.8x, 32% below the SaaS median market valuation. Simply put, the fall from grace of too many one-time high flyers, and the unfulfilled promise of others, have caused investors to be short sighted and highly circumspect about Internet providers that aren t currently achieving both growth and profitability. That s their hedge against a mostly transaction-based revenue model that can be unpredictable, and difficult to sustain. Conversely, investors in rapidly growing public SaaS companies, enamored with the reliability and sustainability of subscription based recurring revenue, are highly critical of SaaS providers that are not investing in their future by aggressively growing their base without regard to profitability. 49

50 THE SEG INTERNET INDEX: FINANCIAL AND MARKET PERFORMANCE BY PRODUCT CATEGORY The SEG Internet Index is segmented into nine product categories. Representative companies in each Internet category are referenced below. Please see the appendix for a complete list of companies within each product category. SEG Internet Index Category EV/Revenue EV/EBITDA TTM Revenue Growth EBITDA Margin 4Q13 1Q14 2Q14 3Q14 4Q14 4Q13 1Q14 2Q14 3Q14 4Q14 4Q13 1Q14 2Q14 3Q14 4Q14 4Q13 1Q14 2Q14 3Q14 4Q14 Ad Tech 3.0x 2.7x 2.0x 2.1x 1.9x 24.7x 23.2x 26.5x 17.2x 29.3x 16.1% 30.3% 27.2% 25.1% 27.7% 4.3% 4.6% 5.4% 5.8% 3.7% Commerce 1.7x 1.1x 1.3x 1.5x 1.5x 15.4x 16.7x 20.2x 28.8x 30.3x 15.2% 16.3% 16.1% 14.1% 13.5% 5.7% 9.6% 8.4% 7.7% 7.7% Content & Media 4.7x 3.8x 2.8x 2.2x 2.1x 30.2x 24.3x 23.2x 19.0x 28.0x 16.0% 8.8% 11.4% 12.9% 12.4% 14.5% 13.2% 11.7% 11.0% 10.6% Gaming 2.9x 3.4x 2.8x 2.5x 2.5x 9.1x 8.5x 10.2x 11.4x 21.5x 18.7% 12.1% 12.2% 14.1% 19.2% 34.7% 27.1% 29.8% 21.0% 18.3% Infrastructure 1.8x 1.8x 1.4x 1.5x 1.4x 17.9x 17.8x 17.7x 17.3x 16.4x 4.3% 10.5% 9.9% 8.4% 7.2% 5.7% 6.5% 6.0% 4.9% 4.7% Search 8.4x 6.7x 6.7x 5.5x 5.7x 21.5x 18.7x 19.4x 16.3x 16.7x 27.2% 28.3% 28.0% 28.7% 29.1% 38.4% 35.4% 34.4% 33.8% 32.8% Services 4.5x 3.4x 2.8x 2.6x 2.5x 40.6x 32.9x 25.1x 28.3x 28.8x 38.2% 51.2% 31.3% 38.3% 30.4% 6.0% 7.1% 7.3% 6.6% 7.1% Social 16.1x 11.5x 13.8x 13.0x 11.4x 52.8x 37.6x 38.8x 36.4x 32.6x 56.9% 57.2% 62.4% 63.7% 63.0% 12.1% 10.9% 9.9% 10.6% 11.2% Travel 3.6x 4.0x 4.4x 4.0x 3.8x 19.5x 18.5x 19.1x 16.9x 15.5x 19.6% 18.4% 17.3% 19.5% 21.0% 17.0% 17.1% 15.0% 14.9% 14.3% Median 3.6x 3.4x 2.7x 2.4x 2.4x 23.7x 21.9x 23.5x 22.1x 26.3x 16.5% 19.5% 18.9% 19.9% 21.0% 9.8% 9.0% 8.5% 8.5% 7.8% Ad Tech Commerce Content & Media Gaming Infrastructure Search Services Social Travel 50

51 THE SEG INTERNET INDEX BY PRODUCT CATEGORY: FINANCIAL AND MARKET PERFORMANCE BY PRODUCT CATEGORY 4Q14 Median TTM Revenue Growth 4Q14 Median YoY Change in Revenue Growth Ad Tech 27.7% Ad Tech 71.6% Commerce 13.5% Commerce (11.5%) Content & Media 12.4% Content & Media (22.3%) Gaming 19.2% Gaming 2.4% Infrastructure 7.2% Infrastructure 69.2% Search 29.1% Search 7.1% Services 30.4% Services (20.3%) Social 63.0% Social (20.3%) Travel 21.0% Travel 10.7% 4Q14 Median TTM EBITDA Margin 4Q14 Median YoY Change in EBITDA Margin Ad Tech 3.7% Ad Tech (15.5%) Commerce Content & Media 7.7% 10.6% Commerce Content & Media (27.0%) 35.5% Gaming 18.3% Gaming (47.4%) Infrastructure 4.7% Infrastructure (17.6%) Search 32.8% Search (14.6%) Services 7.1% Services 18.0% Social 11.2% Social 18.0% Travel 14.3% Travel (7.7%) 51

52 THE SEG INTERNET INDEX BY PRODUCT CATEGORY: FINANCIAL AND MARKET PERFORMANCE BY PRODUCT CATEGORY 4Q14 Median EV/Revenue Multiples Median 4Q14 YoY Change in EV/Revenue Ad Tech 1.9x Ad Tech (35.0%) Commerce 1.5x Commerce (11.7%) Content & Media 2.1x Content & Media (53.8%) Gaming 2.5x Gaming (11.9%) Infrastructure 1.4x Infrastructure (23.9%) Search 5.7x Search (31.8%) Services 2.5x Services (44.6%) Social 11.4x Social (44.6%) Travel 3.8x Travel (29.4%) Public Internet Companies comprising the Social product category closed 4Q14 with a median revenue growth rate (63%) more than twice the overall category median. The success Social media Internet providers have had monetizing their services, largely through advertising, has come at the expense of Search companies that have seen revenue growth slow to a median 17% for all 2014, down from a median growth rate of 30.6% in 2013, with marketers clearly enamored with the reach and ROI of Facebook and LinkedIn. The Social category also closed the fourth quarter with the highest median EV/Revenue market multiple, 11.4x. Though impressive, Q4 s market multiple for Social represented a 44.6% YoY decline from 2013, when the category s median market multiple had increased 85% YoY. As a result of these shifting advertising budgets and priorities, the median TTM revenue growth of the Ad Tech & Lead Generation product category plunged 45.8% YoY in 4Q13 and another 35% YoY in 4Q14. The Infrastructure product category lagged all other Internet product categories, with a 1.4x EV/Revenue multiple, a tepid TTM revenue growth of 7.2%, and a lackluster 4.7% EBITDA margin. 52

53 SOFTWARE/SaaS/INTERNET IPO

54 Number of Software/SaaS/Internet IPOs Total Net Proceeds (Millions) Number of SaaS IPOs Total Net Proceeds (Millions) ANNUAL SOFTWARE IPO TRENDS Software/SaaS/Internet IPOs SaaS IPOs Total Number of IPOs Total Net Proceeds 32 $14, $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 $ Number of SaaS IPOs 3 7 Total Net Proceeds $1, $1,400.0 $1, $1,000.0 $800.0 $600.0 $400.0 $200.0 $ was a record setting year for Software/SaaS/Internet IPOs, with 32 companies making their public market debut, easily surpassing the previous high of 26 IPOs set in 2007, 2012 and These 32 IPOs raised an aggregate $12.2B, manifestly higher than 2013 s $4.7B total, and roughly 30% greater than the prior ten year high of $9.4 billion in 2012, when Facebook s massive IPO boosted new listing proceeds well beyond prior years. In 2014, it was Alibaba s massive $8.3 billion IPO that helped push total net proceeds for the sector to a new high. SaaS companies accounted for nearly 50% of 2014 s software sector total IPO count, compared to 40% of total in In aggregate 2014 s sixteen SaaS IPOs raised approximately $1.4 billion. 54

55 2014 SOFTWARE IPO DATA A10 Networks Company (Ticker) Category IPO Date Net Proceeds Enterprise Value EV / Rev Cyberark Software idream Sky Technologies King Digital Entertainment MobileIron Momo Varonis Systems 2U Amber Road Castlight Health Hortonworks Hubspot Medical Transcript New Relic OPOWER Paycom Software Paylocity Q2 Holdings TrueCar Upland Software Workiva Yodlee Zendesk Alibaba Coupons.com Everyday Health GrubHub LendingClub MOL Global The Rubicon Project TubeMogul Xunlei Networking & Network Performance Management Security Mobile Solutions / Content Mobile Solutions / Content Mobile Solutions / Content Mobile Solutions / Content EV / EBITDA First Day Return YTD Return 3/21/14 $125,550,000 $1,082,242, x n/a 8.1% (70.9%) 9/24/14 $477,700,000 $809,759, x n/a 87.1% 147.8% 8/7/14 $107,415,000 $649,243, x n/a 6.3% 13.9% 3/26/14 $329,403,760 $5,611,316, x 7.8x (15.6%) (31.7%) 6/12/14 $93,000,000 $761,487, x n/a 22.4% 10.7% 12/11/14 $25,200,000 $3,011,650, x x 26.1% (11.1%) Business Intelligence, Storage, Data 2/28/14 $98,208,000 $1,081,300, x n/a 100.0% 49.2% Software Category Median: $107,415,000 $1,081,300, x -58.7x 22.4% 10.7% SaaS Category Vertically Focused 3/28/14 $96,720,000 $540,025, x n/a 7.5% 51.2% ERP & Supply Chain Vertically Focused Business Intelligence CRM & Marketing Vertically Focused Business Intelligence Vertically Focused Workforce Management Workforce Management Vertically Focused Other SaaS Other SaaS Other SaaS Other SaaS CRM & Marketing Commerce Ad tech & Lead Generation Services Services Services Commerce Ad tech & Lead Generation Ad tech & Lead Generation Content & Media SaaS Category Median: Internet Category Median: 3/21/14 $57,824,900 $421,581, x n/a 30.8% (21.4%) 3/14/14 $165,168,000 $3,378,303, x n/a 148.8% (26.9%) 12/12/14 $93,000,000 $986,242, x n/a 64.9% 68.8% 10/9/14 $116,250,000 $911,818, x n/a 20.4% 34.4% 7/23/14 $18,972,000 $19,232, x 26.7x (14.4%) (53.2%) 12/12/14 $106,950,000 $1,472,733, x n/a 47.8% 51.5% 4/4/14 $107,787,000 $1,064,116, x n/a 21.1% (25.1%) 4/15/14 $64,266,000 $766,584, x 52.4x 2.3% 75.5% 3/19/14 $79,050,000 $1,174,505, x 602.0x 41.4% 53.6% 5/19/14 $75,562,500 $330,690, x n/a (7.5%) 44.9% 5/16/14 $65,076,750 $676,960, x n/a 11.8% 154.4% 11/6/14 $42,923,080 $215,617, x n/a (18.8%) (20.3%) 12/12/14 $93,744,000 $533,196, x n/a (1.8%) (4.3%) 10/3/14 $69,750,000 $386,127, x 92.2x 12.0% 1.7% 5/15/14 $93,000,000 $980,463, x n/a 49.2% 170.8% $86,025,000 $721,772, x 72.3x 16.2% 39.7% Internet Category 9/19/14 $8,268,800,530 $232,579,395, x 49.2x 38.1% 52.9% 3/7/14 $156,240,000 $2,179,408, x n/a 87.5% 10.9% 3/28/14 $93,090,000 $455,744, x 43.2x (3.6%) 5.4% 4/4/14 $96,720,000 $2,442,584, x 62.4x 30.8% 39.7% 12/11/14 $711,116, % 68.7% 10/10/14 $87,949,100 $502,183, x 11.7x (34.3%) (75.6%) 4/2/14 $75,564,300 $270,412, x n/a 33.9% 7.6% 7/18/14 $40,687,500 $324,409, x n/a 64.3% 222.1% 6/24/14 $81,640,000 $653,799, x 15.4x 24.2% (39.2%) Total Median: Software Category $93,090,000 $577,991, x 43.2x 33.9% 10.9% $93,045,000 $766,584, x 43.2x 23.3% 12.4% *Financial data is the latest available from Capital IQ. **First day return compares listed offering price to first day close. The breakdown of 2014 s IPOs: Seven on-premise software companies, sixteen SaaS, and nine Internet. Four of the seven on-premise software companies provide Mobile Solutions Performance Management software. Three of these IPO s saw positive first day returns, but only two were able to sustain positive returns through the end of the year - Dream Sky (+13.9%) and MobileIron (10.7%). Conversely, King Digital and Momo were down 31.7% and 11.1%, respectively, by year end. In a year that featured an unusual number of highly touted IPOs, including Alibaba, LendingClub, TrueCar, Hubspot and Zendesk, the 2014 IPO with the highest stock return by year end was TubeMogul whose 2014 stock price closed up 222.1%. TubeMogul provides a platform that enables advertisers to plan, buy, measure, and optimize their video advertising spending from a single platform. The median year end stock return for 2014 s sixteen SaaS IPOs was 39.7%, notably lower than 2013 s median year end return of 108.7% for ten SaaS IPO s, but still quite respectable considering the median EV/Revenue multiple for all public SaaS companies declined from 5.7 x from 6.7x YoY. Given the strengthening labor markets and declining unemployment rates, its no surprise the two workforce management IPOs during 2014, Paycom and Paylocity, posted year end returns of 75.5% and 53.6%, respectively, well above the median (39.7%). Alibaba was 2014 s most anticipated IPO. The China based ecommerce giant debuted with more than a 20 x EV/Rev market valuation, and raised a stunning $8.3 billion. Investors were well rewarded by the company s first day and year end gains, 38.1% and 52.9%, respectively. 55

56 Total VC Dollars Invested ($B) Number of VC Investments Total VC Dollars Invested ($B) U.S. VENTURE CAPITAL ACTIVITY: ALL INDUSTRY SECTORS Overall VC Activity Overall VC Activity by Investment Stage $50 $45 $40 $35 $30 $25 $20 $15 $10 $5 $0 Total VC Investment Dollars Number of VC Investments 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, $50 $45 $40 $35 $30 $25 $20 $15 $10 $5 $0 Seed Early Stage Expansion Later Stage According to PricewaterhouseCoopers, venture capitalists invested in 4,356 companies in 2014, a four percent YoY increase. In aggregate, $48.4 billion was shelled out, a whopping 61% increase YoY increase. Early stage companies represented 50% of the total number of VC recipients in 2014, snagging $15.8 billion (up 54% YoY). Expansion stage companies attracted the most investor cash, $ 19.8 billion (up 102% YoY) spread across 1,156 investments (up 13% YoY). Seed stage investments activity and dollars invested both declined in Seed stage investors deployed $718.7 million (down 29% YoY) across 192 investments (down 18% YoY). Early stage VCs seem to have relinquished this high risk/high reward ground to crowd funding sites and angel sources which have proved to be more accessible and more risk-oriented than many VCs. 56

57 Total VC Dollars Invested ($B) Number of VC Investments U.S. VENTURE CAPITAL ACTIVITY: SOFTWARE Software VC Activity Software VC Dollars as a Percent of Total $20 Total VC Investment Dollars Number of VC Investments 2,000 41% 37% $15 $10 1,500 1,000 15% 27% 21% 23% 24% 25%25%24%23% 26% 22% 22% 20% 20%20%20%19% 31% $5 500 $0 0 The number of software companies receiving VC investments ballooned from 1,523 in 2013 to 1,799 in Since bottoming out in 2009, the number of software focused recipients has expanded at a compounded annual growth rate (CAGR) of 17%. VC dollars invested in software totaled $19.8 billion in 2014, a 77% YoY increase. Since 2009, the aggregate capital invested in software has advanced at a 38% CAGR. Software now accounts for 41% of total VC dollars invested across all industry sectors, compared to 19% in Software is eating the world. Marc Andreessen The next wave of the Web is going to be user-generated content. John Doerr Software is redefining how people do things... We're nowhere near what we can do. Bill Gates 57

58 THE BUYERS SPEAK SOFTWARE EQUITY GROUP S 2015 M&A SURVEY

59 THE BUYERS SPEAK: SOFTWARE EQUITY GROUP S 2015 M&A SURVEY Buyer Thinking 2015 In early January 2015, Software Equity Group conducted its eighth annual Survey of Software Company Buyers to provide our readers a better understanding of 2015 s software M&A ecosystem and buyer thinking. We polled more than 300 of the largest software companies in the world, both public and private. Collectively, the buyers who responded to our survey spent in excess of $8.6 billion on acquisitions in The vast majority (76%) of respondents were public software, SaaS and Internet companies with an aggregate enterprise value of $239.3 billion. Undoubtedly, their plans and playbook will heavily influence the software M&A ecosystem in the year ahead. Number of Planned Acquisitions In 2014, 67% of our respondents acquired at least one software company, reflecting continued concerns by at least a third of eligible buyers about the near term economic outlook. That reticence now seem to have dissipated. In 2015, 95% of our respondents expect to acquire at least one software company. Those that were very acquisitive in 2014 have signaled a slowdown, as they seek to digest 2014 s acquisitions. Only 5% plan on acquiring six or more companies in 2015, down from 18% in 2014, and 14% in Size of Target With virtually all buyers now in the hunt, our Survey results portend well for small, privately held software companies considering an exit in The overwhelming majority of respondents (95%) indicated they ll be focused in 2015 on transactions with enterprise values between $10M - $99M. However, 2015 should also see a greater number of larger and mega-deals. 33% of respondents indicated they anticipate focusing on transactions of $100 million or more Exit Valuations Respondents to our Survey overwhelmingly agreed that exit valuations have topped out for the time being. Some 70% expect to value targets the same as in One in four respondents, however, indicated they intended to pay less in 2015 than they did in 2014 for a substantially similar target. In 2014, the median SaaS exit multiple declined 10% YoY, from 4.1x TTM revenue to 3.7x; we expect a similar decline in 2015, as SaaS exit valuations continue to normalize. There s a clear message here for owners and investors of software/saas and Internet companies that might contemplate exit in Buyers have become more disciplined. Even when bidding on a deal they deem highly strategic, most will stick fast to a valuation they believe reflects the standalone, pre-acquisition, fair market value of the target. 59

60 THE BUYERS SPEAK: SOFTWARE EQUITY GROUP S 2015 M&A SURVEY Buyer Acquisition Motives in 2015 What s driving these buyers to acquire? Clearly, buyers are focused on enhancing, broadening and/or deepening their current offering, with 55% of respondents to our Survey citing synergistic technologies and products as their primary acquisition objective. More than one in three (35%), however, will be seeking targets that can enable them to expand and diversify into new product categories, verticals and territories. Only one in ten respondents indicated their primary M&A objective in 2015 is to consolidate their market and acquire customers for cross sell opportunities. Not one respondent to our 2015 Survey cited the target s profitability as a primary acquisition motive, with 60% deeming it least important when selecting and valuing a candidate. That s consistent with the data published elsewhere in this Report which showed the most profitable public SaaS companies were punished with the lowest EV/Rev market valuations. Passing Muster: What Buyers Consider Most Important About A Target in 2015 Given the predilection of most buyers for technology and products that will enhance, broaden and/or deepen their own, it s no surprise that will be the primary focus of most when evaluating a candidate. More than half our respondents stated great, synergistic products and technologies as the most important target evaluation criteria, with 80% ranking it first or second in importance. The target s growth trajectory was the criteria ranked most important by more than one in three (35%) of our responding buyers, with 70% naming it among their top two acquisition criteria. For buyers, a target s growth confirms not only the market opportunity as reflected by real time market adoption, but the viability and competitiveness of the target s specific offering in that market. Respondents to our 2015 Buyers Survey deemed profitability to be mostly irrelevant when evaluating a target, while placing only slightly more importance on the target s management team and domain expertise. This year, a scant 5% of respondents cited management as the primary reason for acquisition, down from 18% in That could portend fewer earnouts and lockups in 2015, with buyers less concerned about post-closing transition and knowledge transfer. 60

61 THE BUYERS SPEAK: SOFTWARE EQUITY GROUP S 2015 M&A SURVEY What Buyers Don t Want in 2015 Seller candidates that have not invested sufficiently in keeping their products and technology state of the art are destined for rejection in Fully half of our respondents indicated little or no interest in acquiring a target whose technology was mature and in need of a significant upgrade. Even when sell-side candidates assert their target markets are copasetic with their technology as currently deployed, buyers in 2015 will have little interest in assuming the risk of rewrites, redeployments and technology upgrades. Three out of four respondents ranked revenue fluctuation, slow down or decline as their top one or two concerns when evaluating a prospective acquisition. With growth being one of their top two acquisition objectives, any sign the target s advance is slowing or declining is almost always viewed as cause for alarm. Attempts by the target to attribute the slowdown to a revamped sales force, new product launch delays and/or implementation snags will likely fall on deaf ears. Seller beware! The Importance of SaaS And just what did buyer s say about the importance of SaaS this year? In 2014, a whopping 56% of respondents indicated it was very important or absolutely essential a target be all or substantially SaaS deployed and subscription based, as compared to only 13% five years ago. It does seem that some of the buyer impetus for acquiring a SaaS candidate may have ameliorated. With SaaS acquisitions ramping sharply over the past five years, many big buyers have already acquired the hosted technology, infrastructure and vertical domain expertise they lacked earlier, making a highly strategic, on-premise target s prospective transition to SaaS less daunting. The Importance of Mobile Given the market buzz surrounding Mobile, we asked buyers how important it was for a 2015 target to have a solid mobile offering. A third of our respondents deemed it unimportant, while less than half considered it to be somewhat important. We found somewhat telling that only 21% of our respondents deemed a mobile offering to be very important when evaluating a candidate, compared to 33% of respondents to our 2013 Buyers Survey. 61

62 SOFTWARE EQUITY GROUP S 2015 M&A OUTLOOK SURVEY Software Equity Group's 2015 Software M&A Outlook Survey Approximately how many software companies did you acquire in 2014? Response % 0 33% % % % More than 10 5% In 2015, how many software companies do you anticipate acquiring? Response % 0 5% % % % More than 10 5% In 2015, what size transactions do you anticipate focusing on? (Choose all that apply) Response % Under $10M 33% $10M - $99M 95% $100M - $499M 29% Greater than $500M 5% What's your current view of valuations? How much would you expect to pay in 2015 for a company very similar to the one you acquired in 2014? Response % The same 70% Less 25% 10% to 20% more 5% 21% to 30% more 0% 31% to 40% more 0% Greater than 40% more 0% 62

63 SOFTWARE EQUITY GROUP S 2015 M&A OUTLOOK SURVEY Approximately, what percentage of acquisition targets in 2014 were venture capital or private equity-backed (versus 'bootstrapped' or self-funded)? (Please select percentage that were equity-backed) 0-10% 14% 10-20% 24% 20-50% 29% 50-75% 10% % 5% What are your primary acquisition motives in 2015? (Rank 1-5 in order of priority, 1=most important, 5=least important) Ranking Consolidating your current market: customer acquisition and market share 10% 25% 30% 20% 15% Enhancing/deepening your offering incrementally w ith synergistic technologies and products 55% 15% 5% 25% 0% Expanding/diversifying into new product categories, technologies, verticals, and/or territories 35% 30% 10% 15% 10% Improving your near term financial performance metrics 0% 20% 5% 15% 60% Competitive differentiation 0% 10% 50% 20% 20% When selecting and valuing a particular acquisition target in 2015, what's most/least important? (Rank 1-5 in order of importance; 1=most important, 5=least important) Response % Ranking Products and technology: The target s products/technology are w ell executed, a great fit w ith us, and provide the strategic leverage/competitive differentiation w e seek 55% 25% 15% 0% 5% Grow th: The target is grow ing at a rate far greater than average, demonstrating strong market demand, and w e w ant to catch that w ave 35% 35% 20% 10% 0% Profitability: The target is highly profitable, the deal w ill be accretive, the financial risk is low er 0% 5% 20% 15% 60% Customer Focus: We can really capitalize upon the target's geography/market niche/customer base 5% 10% 20% 40% 25% Management and Operations: The target has deep domain expertise w e need to acquire, a great team, proven performers 5% 25% 25% 35% 10% What concerns your company most when evaluating a potential acquisition target? (Rank 1-5 in order of importance, 1=most important, 5=least important) Ranking Revenue concentration 10% 10% 20% 35% 25% Revenue fluctuation, slow dow n or decline 35% 40% 20% 5% 0% Mature technology requiring significant update 50% 25% 25% 0% 0% Solution w ritten in an incompatible language (Java vs. C#) or not easily interfaced/integrated w ith your offering 5% 15% 35% 35% 10% Little or no EBITDA 0% 10% 0% 25% 65% 63

64 SOFTWARE EQUITY GROUP S 2015 M&A OUTLOOK SURVEY How important is it for you in 2015 that the target have a well executed mobile offering as part of its overall product offering? Response % Unimportant 32% Somew hat 47% Very 21% Absolutely essential 0% Who is setting acquisition strategy? (Choose all that apply) Response % Board 0% CEO 38% Executive Management Collaboratively 67% Business Unit Head 48% Competition 0% How important is it for you in 2015 that the target be all or substantially SaaS/subscription based? Response % Unimportant 6% Somew hat 39% Very 50% Absolutely essential 6% * In some instances, the percentages listed in the responses for a particular question exceed 100% in aggregate due to rounding. 64

65 SOFTWARE INDUSTRY M&A MARKET UPDATE

66 Number of Deals Number of Deals SOFTWARE/SaaS M&A DEAL VOLUME AND SPENDING U.S. Software Mergers & Acquisitions Activity - Quarterly U.S. Software Mergers & Acquisitions Activity - Annual $ $31.4 $23.1 $26.7 $20.8 $22.8 $15.8 $20.2 $15.8 $12.3 $9.9 $ $17.3 $45 $40 $35 $30 $25 $20 $15 $10 $5 Value (BIllions) $ ,642 1,766 1,727 1,672 1,914 $70.4 $67.0 $67.0 $ Deals Value $140 $120 $100 $80 $60 $40 $20 $0 Value (BIllions) 0 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 $0 Deals After averaging about 1,700 software transactions annually for each of the past four years, software M&A deal volume soared to 1,914 transactions in 2014, a 15% YoY increase. Software M&A spending also rose dramatically in 2014, buoyed by a plethora of megadeals and higher deal volume s aggregate M&A price tag of $114.8 billion was almost 60% greater than the $67.0 billion spent on industry acquisitions in in each 2012 and To add some perspective, the closest we ve come in the past decade to this year s M&A deal volume and spend was in pre-recession 2007, when roughly $82 billion was spent on 1,894 transactions. Additionally, 2Q14 was the only the third time since 2003 to eclipse the 500/quarter mark beating 2Q07 (502) and virtually matching 1Q08 (518). With healthy balance sheets and growing confidence in the economy, strategic and financial buyers in 2014 dug deeper and raised their sights, shelling out roughly $77 billion among 46 mega-deals t (EV> $500M) s largest M&A transactions included Facebook s acquisition of WhatsApp ($16.4 billion); SAP s acquisition of Concur ($7.7 billion, 11.5x EV/Rev); Oracle s acquisition of Micros Systems ($4.6 billion, 3.4x EV/Rev); and Zillow s acquisition of Trulia ($3.1 billion, 14.8x EV/Rev). 66

67 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 TTM Average Deal Value (Millions) % of Deals SOFTWARE M&A EXIT MULTIPLES Average On-Premise Software M&A Deal Value Median EV/Revenue Exit Multiple Distribution $70.0 $60.0 $50.0 $40.0 $30.0 $20.0 $10.0 $0.0 $63 $60 $53 $54 $41 $41 $42 $36 $39 $40 $43 $36 $ % 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 15.4% 25.0% <= 1.0x > 1.0x & <= 2.0x 28.8% > 2.0x & <= 3.0x 10.6% 9.6% > 3.0x & <= 4.0x 2.9% > 4.0x & > 5.0x & <= 5.0x <= 6.0x 7.7% > 6.0x TTM Revenue Exit Multiple Bins Q4 s $60M average software M&A price tag, though modestly lower than the prior quarter, was significantly greater than the historical average. In part that was due to the increased number and size of the fourth quarter s megadeals. The $60M average transaction size affirms the results of our 2014 Annual Buyer Survey, in which 95% of respondents indicated they d focus in the year ahead on deals in that price range. In 2014, slightly more than 40% of all on-premise software targets were acquired for 2.0x TTM revenue or less, and almost 70% sold for 3.0x revenue orless. A significant percentage of targets receiving a 3.0x or higher exit multiple were both sizable and vertically focused, enhancing buyers growth rates and vertical market penetration. Among 2014 s more noteworthy on-premise vertical software acquisitions: Cognizant Technology s acquisition of Trizetto Group ($2.7 billion, 3.8x EV/Rev); Oracle s acquisition of Micros Systems ($4.6 billion, 3.4x EV/Rev); Dassault Systemes acquisition of Accelrys ($683M, 4.1x EV/Rev); and Nemetschek s acquisition of Bluebeam Software ($100M, 4.6x EV/Rev). 67

68 SOFTWARE M&A EXIT MULTIPLES 20.0x 18.0x 16.0x 14.0x 12.0x 10.0x 8.0x 6.0x 4.0x 2.0x 0.0x Median Exit Multiples - Quarterly EV/Revenue EV/EBITDA 18.1x 17.7x 16.2x 12.9x 13.3x 2.3x 2.3x 2.3x 2.4x 2.3x 4Q13 1Q14 2Q14 3Q14 4Q14 The median software industry exit multiple in 2014 was 2.3x TTM revenue. The multiple has remained virtually unchanged over the past six quarters since leaping to 2.3x in 3Q13 from 1.8x in 2Q s annualized median exit multiple is the highest on record since we began publication in Historically, the median software industry M&A multiple has hovered at 2x revenue. On an EBITDA basis, the median exit multiple in 4Q14 was 16.2x TTM EBITDA. The multiple has declined the past two quarters from 2Q14 s post-recession high of 18.1x, with strategic buyers more concerned about accelerated growth than profitability. 3.0x Median EV/Revenue Exit Multiple - Annual 2.0x 1.4x 1.7x 2.0x 2.0x 2.1x 1.9x 1.8x 2.0x 2.1x 2.0x 2.2x 2.3x 1.0x 0.0x

69 SOFTWARE M&A: BY OWNERSHIP STRUCTURE AND SIZE By Ownership Structure By Size Public Sellers 2.2x Median Multiple 23% 77% Private Sellers 2.4x Median Multiple Buyer Greater Than $200 million 2.8x Median Multiple 46% Buyer Less Than $200 million 1.9x Median Multiple 54% Private Buyers 2.3x Median Multiple 29% 71% Public Buyers 2.3x Median Multiple Historically, public buyers have paid more for acquisition targets than private buyers. In 2014, however, both public and private buyers paid a median 2.3x TTM revenue for their acquisitions. In large part, that s because a plethora of private equity firms, seeking to bulk up portfolio platform investments in order to take advantage of a sizzling IPO market, were willing to confer strategic valuations on targets deemed highly opportune and readily digestible. Based on our analysis, private equity firms paid a median 3.0x TTM revenue for their targets in Select private equity transactions included Vista Equity Partners 4Q14 acquisition of Advanced Computer Software Group ($1.1 billion, 3.3x EV/Rev), and Apax Partners 4Q14 acquisition of Exact Holdings ($817 million, 3.1x EV/Rev). Seller Greater Than $20 million: 0.8x 2.8x Seller Less Than $20 million: 3.0x million Seller Greater Than $20 million: 1.5x 1.7x Seller Less Than $20 million: 2.4x 1.9x Among public buyers, those with deep pockets (revenue greater than $200 million) paid a median 2.8x TTM revenue for their targets in 2014, compared to only 1.9x paid by smaller public buyers. Larger buyers, whether public or private, buyers, paid a higher multiple in 2014 for targets <$20 million revenue than for targets >$20 million. Many of these smaller targets required a modest premium in order to give up the dream, after finally gaining market traction and accelerated growth in

70 SOFTWARE M&A: BY VERTICAL AND HORIZONTAL MARKETS Horizontal & Vertical M&A Volume Horizontal & Vertical M&A Median EV/Revenue Exit Multiples Horizontal software providers garnered the lion s share of M&A transactions in 2014, as they have for the past five years, accounting for 67% of all software M&A transactions. The median exit multiple for horizontal software companies in 2014 was 2.3x TTM revenue, virtually unchanged since Noteworthy horizontal deals in 2014 included SAP s acquisition of supply chain planning and optimization provider, Quintiq, for $337 million (3.3x revenue); Thoma Bravo s acquisition of infrastructure software provider, Compuware, for $2.4 billion (2.9x revenue); Micro Focus acquisition of system s management software provider, The Attachmate Group, for $2.3 billion (2.5x EV/Rev;, and Apax Partners acquisition of ERP provider, Exact Holdings, for $861 million (3.2x EV/Rev). Vertical transactions continued to account for about one-third of total software M&A deal volume. The median TTM revenue exit multiple for vertical software companies was 2.2x, a marked increase over the past two years. Select 2014 vertical deals included KBC Advanced Technologies acquisition of upstream oil & gas software provider, FEESA, for $19.2 million (4.9x EV/Rev); Nemetschek s acquisition of construction project collaboration software provider Bluebeam Software, for $100 million (4.5x EV/Rev); Equifax s acquisition of debt collection software provider, TDX Group, for $327 million (3.7x EV/Rev); and Cognizant Technology s acquisition of healthcare insurance and benefits administration software provider, TriZetto Group. 70

71 Vertical Deals SOFTWARE M&A DEAL VOLUME BY PRODUCT CATEGORY The Mobile product category, once again, led all others in 2014, accounting for 21.9% of total software M&A transactions, compared to 20.8% in Other active M&A categories in 2014 included Financial Services (6.7%), BI, Risk & Compliance (5.0%), & Healthcare (4.5%). The CRM, Marketing & Sales, and BI, Risk & Compliance categories, posted the largest year over year percent increases in deal volume as a percent of total, accounting for 4.5% and 5.0%, respectively, of 2014 transactions, compared with 2.1% and 3.1%, respectively, in The Engineering, PLM & CAD, and Supply Chain Management, categories posted the steepest year-over-year declines as a percent of total, accounting for 2.4% and 1.8% of deals in 2014, compared to 4.3% and 3.9%, respectively, in2013. The Other Verticals category, which accounted for 7.7% of all transactions in 2014, included Trimble s acquisition of crime prevention software provider The Omega Group; First American s acquisition of mortgage industry fraud prevention software provider Interthinx, for $155 million; and Boeing s acquisition of aircraft asset management provider, Aerdata. 71

72 Healthcare Mobile Content, Document & BPM BI, Risk & Compliance Other Verticals (A&D, Telco, Retail, etc.) Education Security Supply Chain Mgmt. CRM & Marketing SOFTWARE M&A EXIT VALUATIONS BY PRODUCT CATEGORY Median EV/Revenue Exit Multiples by Software Product Category 2.8x 2.5x 2.3x 2.3x 2.2x 2.1x 1.9x 1.5x 1.1x While we closely monitor 32 on-premise software product categories, only nine had both sufficient deal activity and deal data to ascertain a statistically credible TTM Revenue exit multiple in Among these nine product categories, Healthcare racked up 2014 s highest median TTM Revenue multiple (2.8x), aided by Cognizant Technology s 3Q14 acquisition of healthcare payer and provider solution software vendor Trizetto, for $2.7 billion (3.8x revenue); and Maquet s 3Q14 acquisition of hospital systems software provider, Cetrea, for $16.1 million (3.7x EV/Rev). Mobile software application sellers came in a close second, commanding a median 2.5x TTM Revenue in 2014, which included Start Today s 3Q14 acquisition of Yappa for $10.2 million (5.0x EV/Rev), and Yahoo s 3Q14 acquisition of Flurry for ~$300 million (3.0x EV/Rev estimate). Mobile was followed by the Content, Document & BPM, and the BI, Risk & Compliance categories, both with a median 2.3x TTM revenue exit multiple. Categories that struggled to excite buyers in 2014 were the CRM & Marketing and Supply Chain Management categories, posting dismal TTM median revenue exit multiples of 1.1x and 1.5x, respectively. With cloud offerings now dominating each of these categories, buyers and investors were likely acquiring the target s customers and contracts, rather than its IP and market momentum a scenario that invariably yields a significantly lower exit multiple.. 72

73 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 # of SaaS M&A Deals SaaS M&A Deals as a % of Total Software M&A Deals # of SaaS M&A Deals SaaS M&A: DEAL VOLUME AND EXIT MULTIPLES SaaS M&A Volume - Quarterly SaaS M&A Volume - Annual SaaS M&A Deals SaaS as % of Software % % 86 20% % 10% 5% 0% SaaS M&A transaction volume in 1Q14 equaled the previous high of 104 deals in 2Q13, and set the tone for the rest of the year, with quarterly deal volume consistently growing and chalking up new highs every quarter. As we went to press, 132 SaaS deals closed in the fourth quarter, a number that will likely increase as additional year-end deals are publicly announced. SaaS exits have grown a whopping 56% on a CAGR basis over the past 5 years, but SaaS exit rate growth has slowed over the past two years s SaaS deal volume was about 18% greater than the prior year, accounting for almost one in four of all software industry M&A transactions. 73

74 SaaS M&A: DEAL VOLUME AND EXIT MULTIPLES Median SaaS EV/Revenue Exit Multiples - Quarterly Median SaaS EV/Revenue Exit Multiples - Annual 4.1x 4.6x 4.0x 4.1x 3.7x 3.2x 3.7x 4.1x 4.1x 3.7x 4Q13 1Q14 2Q14 3Q14 4Q14 After reaching a breathtaking 4.0x or greater for each of the past eight quarters, the median SaaS exit multiple on a TTM revenue basis dropped to 3.7x revenue in 4Q14, the same median multiple that prevailed from 3Q11 through 1Q12. The decline is due the elimination of several very high multiple deals posted in 4Q13 from our 4Q14 TTM analysis, including Oracle s acquisition of Responsys (8.2x), Textura s acquisition of Latista (10.8x) and Experian s acquisition of Passport Health (7.0x). The 3.7x median SaaS exit multiple for all of 2013 was 61% greater than the 2.3x median on-premise exit multiple for We anticipate the median SaaS exit multiple will remain below 4.0x in 2015 as buyers push back x Median SaaS EV/Revenue By Size Since 1Q10 3.4x 4.5x 4.4x <= 10M > 10M & <= 20M > 20M & <= 50M > 50M & <= 100M 4.7x > 100M Larger SaaS targets those that offered buyers not only a fast path to hosted solutions, vertical markets and compelling point solutions, but incremental revenue that could move the buyer s needle, commanded a significantly higher exit multiple than their smaller SaaS counterparts. Based upon SEG s analysis of 1,469 SaaS M&A transactions since 2010, SaaS providers with revenue less than $10 million received a median 3.1x revenue exit multiple, while SaaS companies with revenue greater than $100 million commanded a median 4.7x TTM revenue exit valuation. 74

75 Vertical Deals SaaS M&A BY PRODUCT CATEGORY The 462 SaaS acquisitions that closed in 2014 were spread across a wide number of product categories and vertical markets. CRM and Marketing once again led all product categories in acquisition activity, accounting for 14.6% of total 2014 SaaS deal volume, slightly lower than 15.1% in The Talent & Workforce Mgmt product category, which claimed only 6.4% of SaaS transactions in 2013, rose sharply to 11.1% in Indeed, M&A activity across all HR segments rebounded in 2014, not surprising considering 2014 s improved economy and marked increase in new hires. Transactions spanned payroll automation and benefits administration to core HRIS to social and data driven talent management. Led by ServiceNow s $100 million (~20x TTM Revenue) acquisition in 3Q14 of Neebula Systems, a cloud business service management tools provider, Systems Management was the third most active category in 2014, accounting for 9.2% of all SaaS transactions. However, SaaS infrastructure transactions still lagged well behind SaaS application deals as a percent of total. That will undoubtedly change as market adoption of SaaS infrastructure solutions grows. 75