2 Key Sector Takeaways Recent Software Transaction Trends Public Market SaaS Analyses SaaS CEO Commentary Appendix A: GP Bullhound SaaS Index Appendix B: Software Public Comps by Category 1 2 3 4 6 7 8 Appendix C: GP Bullhound Software ReportOverview, Software Credentials & Team5Key SaaS Metrics 3 Machine learning and artificial intelligence are being incorporated on a wide scale as a way for SaaS products todifferentiate themselves in crowded markets –Chatbots and virtual assistants have had a huge impact on CX over the past couple years, creating extremely personalized experiences,freeing up resources and cutting costs –Machine learning and Artificial Intelligence APIs are now widely available to SaaS companies. Those that adopt it, often throughthe largecloud providers, are able to differentiate their product through predictive sales efforts, personalized solutions and automated data visualization SaaS companies still need to have the specialist ML/AI human talent necessary to maximize the impact of these features It is early days in a transformational shift in desktop computing; increasingly organizations will migrate away from runningan OS on individual devices to Desktop as a Service (DaaS) –DaaSis a cloud computing offering in which a third party hosts the back end of a virtual desktop infrastructure (VDI) deployment –DaaSenhances security, eases implementation of a mobile workforce, provides device cost savings, automates disaster recovery and allowmore efficient use of IT resources –Businesses are increasingly using VDI to decrease upfront costs, enhance security and optimize IT resources for efficiency and cost benefitsEnterprise software companies focused on one department are aggressively expanding into adjacent departments –Companies like ServiceNow, focused on ITSM, and Workday, HR/HCM provider, are aggressively expanding into other enterprise departments - ServiceNow into HR and Workday into Financial Management –Companies are carrying out this department expansion with transformational M&A, and to a lesser extent investing in a bottom up build of anew product GP Bullhound’s Views on Current Trends in Software Source: CapitalIQ, Pitchbook Deal Amount: $6.8BnDeal Amount: $1.6Bn 4 We are observing an upward trend in the revenue multiples being paid for premium software assets of scale –We analyzed Enterprise Value / Revenue multiples in H1 2017 and H1 2018 for SaaS deals greater than $100m, as well as SaaS dealsgreaterthan $500mWhen comparing deals with an enterprise value of $500m or greater that occurred in H1 2018 against H1 2017 there is a materialincrease in the median EV/Revenue multiple being paid The 2018 scale premium phenomenon drops significantly when evaluating deals greater than $100m, reinforcing the underlying trend –As the SaaS market has matured, and consolidation has taken place, high quality companies of scale have become increasingly rare, as aresult scale premiums are being paid and trending upwardsWe have seen several high profile software companies filing for IPOs and then being acquired, either before the IPO, orshortly after their public market debut –The software IPO market in the US has opened up in H1 2018 with 14 software IPOs, up from 4 in H1 2017 –Filing to go public gives companies leverage over any potential bidders, allowing them to maximize valuation. This manifests itself eitherthrough a public market stock premium (particularly advantageous given the initial performance of recent software IPOs), or an abovemarket revenue multiple if the transaction occurs post filing Mulesoftwas acquired by Salesforce for $6.8Bn after being public for 12 months (35.7% 1 day premium,164% increase over IPO price)Appdynamicsacquired by Cisco in 2017, during its IPO filing period, but before going public, for $3.7Bn at an 18.9x EV/LTM Rev multiple Adaptive Insights acquired by Workday for $1.6Bn in June 2018, a month after filing -the IPO had them valued at $580m -$670m We have previously discussed Private Equity firms enacting a software roll up strategy, this trend has picked up so muchmomentum we felt it should be highlighted once again (see next slide) –Private equity firms are acquiring ‘platform’ companies around which they acquire multiple complementary companies –‘Roll up’ acquisitions provide the platform company with product depth, revenue/ARR scale, geographic diversification, customers, etc. GP Bullhound’s Views on Current Trends in Software (Cont’d) Source: Pitchbook Enterprise ValueH1 2017H1 2018% Change$100m # Deals54564% EV/Revenue 4.3x5.4x26%$500m # Deals2119(10%) EV/Revenue 5.0x8.9x78% 。。。。。。