SOFTWARE MIDDLE-MARKET UPDATE 4Q2018

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1 SOFTWARE MIDDLE-MARKET UPDATE 4Q218

2 4Q 218 OVERALL MARKET UPDATE AND ECONOMIC REVIEW Transaction Volume 3, 2,5 2, 1,5 1, 5 4Q 218 M&A UPDATE Middle-market M&A activity declined for the fourth consecutive quarter, posting the lowest volume and value levels in 3+ years. The number of transactions in 4Q18 declined 19% from the previous quarter and 28% YoY. The value of these transaction declined 2% and 45%, respectively, over the same periods. The healthcare industry, usually a stalwart, experienced similar declines in volume and value. Middle-Market Quarterly M&A Activity - All Secrs 1,689 1,832 1,51 1,671 1,536 1,682 1,68 1,616 1,892 1,763 1,596 1,672 1,354 $3 $25 $2 $15 $1 $5 Total Transaction Value ($ in Billions) The fourth quarter was a period of reckoning for all major sck indices, which continue be priced for perfection. Any negative earnings, economic, trade, political, fiscal or monetary policy news is greeted with significant market declines and increasing volatility. In 4Q18, the S&P 5, NASDAQ and DJIA declined 14.3%, 17.4% and 12.5%, respectively. Even more accommodative monetary policy signals from the Fed have been unable quell the market s high anxiety. Despite market ups and downs, companies continue report strong earnings growth. With 98% of the S&P 5 reporting results, 7% of the companies comprising the index generated positive earnings surprises and 62% have reported better than expected revenue growth. If the S&P 5 earnings continue track at current levels, growth will average 12.4% for the quarter, representing the fifth straight quarter of double digit earnings growth. 18% STOCK MARKET S&P 5 NASDAQ DJIA 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q $ 16% Source: Pitchbook. $25M-$1M $1M-$5M $5M-$1B Total Transaction Value These trends are a bit alarming given the level of cash sloshing around the capital markets and corporate balance sheets and the economy demonstrating slowing but still solid growth. Private equity firms are sitting on ~$1.3 trillion in cash commitments, and banks remain eager lend any entity that can proverbially fog a mirror. For full year 219, most economists are predicting 2.5%-2.75% GDP growth. With this backdrop, M&Aactivity should be stronger. The only plausible explanation is that buyers believe we are in the very late, if not extra innings, of a long overdue end a baseball game. The U.S. economy is experiencing its ninth consecutive year of economic expansion, versus the typical seven years of growth that follow most post-war recessions. With seller expectations at all-time highs, buyers have raised the business profile and diligence bars, demanding superior revenue (i.e. recurring) models, strong and sustainable organic growth and no accounting, legal, cusmer or management issues. 14% 12% 1% 8% -16 Jun-16 Nov-16 Apr-17 Sep-17 Feb Dec-18 1

3 4Q 218 OVERALL MARKET UPDATE AND ECONOMIC REVIEW Job growth reaccelerated in 4Q18 as the impact of deregulation and tax cuts began kick-in. For the quarter, non-farm payroll growth averaged 232, versus 173,677 per month in the previous quarter and 189, over the same period last year. This economy has been a job creating machine, producing higher quality and better paying jobs, with strong gains in manufacturing, services and technology across all demographic and racial groups. In addition, wage growth is the best it has been in nearly 2 years while inflation has been kept in check. February s job growth number was a shocker at 2,; however, based on all the other economic data, we believe this figure is an anomaly and will return slower, albeit still healthy, growth levels. (in thousands) Source: Bureau of Labor Statistics U-3 finished the year up slightly at 3.7% despite strong job creation, largely due more participants entering the workforce. Although there have been some minor month month fluctuations, U-3 seems be settling in at the 3.5% 3.7% level, which may represent full employment absent any further increases in the labor participation rate. U-6 finished the year at 7.3%, which reflects the higher quality of the jobs being created and lower levels of underemployment. At this point in the economic cycle, these levels of job growth, GDP and unemployment are unprecedented. 12% 9% 6% 3% Mar Apr May Sep Oct Nov Apr NON-FARM PAYROLL Hisrical Change in Non-Farm Payrolls Mar May UNEMPLOYMENT Oct Sep Nov U-6 Unemployment Traditional Unemployment Source: Bureau of Labor Statistics Apr Mar Unemployment May Oct Sep Nov Apr Mar May Oct Sep Dec Nov Feb By every measure, the U.S. economy is robust. Although GDP growth slowed in the fourth quarter, the economy still managed grow 2.6% following up on 3.5% and 4.2% increases in the previous two quarters, respectively. This performance was particularly impressive when considering the Fed s highly negative monetary stance announced at the end of the third and beginning of the fourth quarter and a prolonged government shutdown. In the middle of 4Q18, the Fed reevaluated its position and signaled it would be more accommodating, largely in an attempt reduce increasing sck market volatility. Some economists estimate that the government shutdown knocked-off as much as.25% from 4Q18 GDP. 5.% 4.% 3.% 2.% 1.%.% Median = 2.8% GROSS DOMESTIC PRODUCT GDP Growth Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Despite all the political handwringing over Russian Collusion, 218 was an excellent year in most respects. The U.S. experienced strong GDP and job growth, finished the year with record low unemployment, had 8 million less people living in economic poverty than eight years ago and 3 million fewer people on food stamps then in uary of 217. Over the same period, GDP increased by $1.7 trillion, America has made slow but steady progress ward establishing more equitable trade and has reclaimed the title (1973) of the world s largest oil producer, generating 11.6 million barrels per day. Ironically, the U.S. exceeded the annual percentage of carbon reductions of most members of the Paris Climate Accord. The two biggest issues weighing on economic growth are trade disputes with China and the growing national debt. We believe the impact of trade talks is overblown. The U.S economy is still $8 trillion larger than China's, and our workforce is 8% more productive. National debt sod at $22 trillion at year-end. As we have discussed in previous reports, debt is growing but much more slowly under the Trump Administration. Higher GDP growth and the resulting increase in the size of the economy ameliorate some of the concerns associated with higher debt levels; however, the only real solution is entitlement reform. In summary, we remain optimistic about near-term economic expansion. 2

4 QUARTERLY MIDDLE-MARKET M&A ACTIVITY 218 middle-market M&A volume was lower with 6,385 transactions compared 6,798 in Q18 volume of 1,354 deals was 28.4% lower than the 1,892 transactions in 4Q17 and 19.% lower than the 1,672 transactions in 3Q transaction value of $96.6 billion was essentially flat compared 217 of $959.6 billion. Note: 4Q18 transaction volume and value are artificially low due the lag in gathering data on middle-market transactions. Sponsor-backed transactions continue represent a growing percentage of M&A deals, expanding from 38.7% of transactions in % in 218. Middle-market M&A activity is expected be steady in the first half of 219, though high seller valuation expectations and an aging economic cycle may weigh on transaction volume as the year progresses. 8, 6, 4, 2, ANNUAL M&A ACQUIRER TYPE 6,89 6,798 6,579 6,54 6,385 5,34 4,733 4, % 66.6% 61.3% 62.7% 54.7% 63.7% 67.9% 63.7% 36.3% 34.8% 33.4% 37.3% 38.7% 45.3% 32.1% 36.3% * Sponsor Backed Corporate M&A 2, 1,8 1,6 1,4 1,2 1, 8 1,536 QUARTERLY MIDDLE-MARKET M&A VOLUME 1,892 1,763 1,682 1,68 1,616 1,596 1,672 1,354 ($B) $35. $3. $25. $2. $15. $217.1 QUARTERLY MIDDLE-MARKET M&A VALUE $275.4 $252. $252.6 $24.3 $244.7 $227.8 $227.2 $ $1. $5. 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q $. 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Under $1M $1M-$5M $5M-$1B Source: PitchBook. Includes all U.S.-based disclosed, closed deals $25 million $1 billion through December 31, 218. Under $1M $1M-$5M $5M-$1B 3

5 PRIVATE EQUITY ACTIVITY Private equity ( PE ) funds invested $428 billion across 2,971 transactions in 218, representing YoY increases of 14.8% and 15.1%, respectively. For the first time, each quarter of 218 had over $1 billion in tal middlemarket PE deal value. PE s focus on software and other high-growth secrs caused middle market valuations remain elevated even as U.S. public company multiples have contracted. Add-on acquisitions are expected comprise a growing percentage of middle market transactions given the higher valuation multiples. Across the broader PE market, deals and funds continue rise in size, resulting in US middle market tal deal value comprising only 53.3% of all PE dollars in 218, a 13.1% decrease from the 61.3% in 217. US PE middle-market exit activity dropped $188 billion across 876 transactions in 218, representing decreases from 217 of 1.5% and 14.8%, respectively. PE firms are raising larger funds with 13 new funds closed in 218 taling $19 billion, representing an average middle-market fund size of $842 million. Middle market activity is expected be stable in 219, though valuation multiples may come under pressure as the market enters the end of a long economic cycle and PE firms become more disciplined in seeking high-quality and growing opportunities. MIDDLE-MARKET PE FUNDRAISING ACTIVITY ($M) 1,517 $27 $123 1,933 $248 $11 MIDDLE-MARKET PE ACQUISITION ACTIVITY 1,737 $245 $129 2,276 2,25 $351 $152 $131 $131 $178 $ $317 2,417 $315 2,582 $373 2, Deal Value ($B) # of Deals Closed MIDDLE-MARKET PE MEDIAN DEAL SIZE MIDDLE-MARKET PE EXIT ACTIVITY $ $74 $73 $85 $111 $97 $113 $116 $ ,91 1, , $139 $174 $144 $228 $212 $195 $21 $ Capital Raised ($B) # of Funds Closed Source: PitchBook Exit Value ($B) # of Exits 4

6 LEVERAGED LOAN MARKET Leverage and covenant structures have become increasingly more aggressive over the last few years, and although the fundamental backdrop for the credit market remains strong, lenders began push back in 4Q18. The extended credit cycle seems be reaching its peak, and lenders are becoming more wary of high leverage and covenant erosion. High-quality companies still have significant access debt for M&A, refinancing and growth initiatives due strong lender demand. Aggressive leverage ratios for these credits continue provide ample capital support elevated valuations. Middle-market loan issuance in 218 was slightly lower than 217, despite strong demand from both traditional and non-traditional lenders. In uary, the FOMC elected leave the current overnight funds rate unchanged at 2.25% - 2.5% following a 25bp increase in December. Projections for rate hikes in 219 are more uncertain after being reduced from three two in December. Middle-market credit conditions are expected remain favorable for much of 219, though the market is beginning show signs of weakness from reaching the end of an expanded economic cycle. $5. $45. $4. $35. $3. $25. $2. $15. $1. $5. $- ($B) $23.6 LOAN ISSUANCE FOR THE MIDDLE-MARKET (<$1M) $37.7 $43.2 $46.4 $43.2 $42.4 $34.4 $33.6 $33.4 $ RECENT LEVERAGED LOAN STATISTICS Note: Indicative debt multiples are for borrowers with at least $1 million of EBITDA. 14.x 12.x 1.x 8.x 6.x 4.x 2.x.x Leverage Pricing and Fees Bank Non-Bank Libor (3-month) 2.63% 2.63% Pricing L + ( %) L + ( %) Floor - - Upfront Fees 5 bps 5 bps Unused 25 bps 5 bps Debt as Multiple of EBITDA Senior Debt Total Debt Healthcare Services 4.5x 5.5x Healthcare IT 5.x 7.x Non-Healthcare 5.x 6.x 5.x 7.x 4.x 3.x 3.5x U.S. PE BUYOUT MULTIPLES Debt/EBITDA 4.6x 4.3x 4.6x 4.6x 4.3x Equity/EBITDA 4.x 6.2x 5.3x 7.1x 4.6x 5.3x 5.7x 5.3x 5.8x 5.3x 6.2x 6.2x

7 ENTERPRISE SOFTWARE: OVERVIEW OF M&A AND VALUATION TRENDS Publicly traded software companies experienced a sharp pullback during 4Q18, with median TEV/NTM Sales multiples contracting 28% from their September peak of 9.2x their November low of 6.5x, the same level where they were trading at the beginning of 218. Driven by dovish Fed commentary and solid results from names like Salesforce.com, Workday and VMWare, software scks rebounded ~7.5x NTM Sales by year-end. On a growth-adjusted basis, SaaS scks at year-end traded at a premium (.29x TEV/NTM Sales/Growth) relative their hisrical average (.21x) (1). Over the last few years, multiple expansion/contraction has been the primary driver of software sck movement vs. estimate revisions, especially among high-growth scks. Amid a slowing macro backdrop, Wall Street surveys of CIOs indicate continued solid software spending growth of ~5% during 219, in-line with the rate CIOs experienced in 218. CIOs expect software continue gaining share of enterprise IT spending budgets. Top areas of expected IT spending growth include cloud computing, digitalization initiatives, BI/analytics, AI/ML/process aumation, SaaS and security software. (1) Wall Street research. $4. $35. $3. $25. $2. $15. $1. $5. $. QUARTERLY MIDDLE-MARKET (2) ENTERPRISE SOFTWARE M&A TRENDS ($B) 137 $ $ $ $11.1 $ $ $ $ $ $28.2 $3.7 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q (2) Middle-market includes deal values of $25M - $1B. $ Invested Deal Count $ % 16% 14% 12% 2.5x 1% 96% 94% 8%.x -18 Apr Oct ($M) Source: PitchBook LTM ENTERPRISE SOFTWARE INDEX VS. S&P & NASDAQ S&P 5 SaaS Index SaaS Average TEV / NTM Revenue SELECT DEALS NASDAQ Software Index Target Acquiror Ann. Date TEV (3) Revenue TEV/LTM 144% 19% TEV/NTM % Rev Growth Revenue ('18E) MINDBODY Vista Equity Partners 12/24/18 $1, x 5.7x 22.4% Travelport Worldwide Evergreen Coast Capital; Siris Capital 12/1/18 4,4. 1.7x 1.6x 5.% Wrike Vista Equity Partners 11/29/ x 4.8x 86.% PlanGrid Audesk 11/2/ x 9.x 5.% Qualtrics SAP 11/12/18 8,. 2.x 13.8x 45.% Apptio Vista Equity Partners 11/9/18 1, x 6.7x 15.1% RedHat IBM 1/28/18 33, x 8.9x 14.8% SendGrid Twilio 1/15/18 2,. 14.3x 11.5x 24.3% Cambium Learning Group Veritas 1/15/ x 5.2x 7.3% (3) Data per SEC filings and PitchBook. 6.9x 6 1.x 7.5x 5.x

8 BRENTWOOD CAPITAL ADVISORS OVERVIEW TRANSACTION ACTIVITY REPRESENTATIVE TRANSACTIONS Since 22, BCA has completed: 99 transactions with aggregate value of approximately $6.4 billion. 8 M&A and equity raising assignments with aggregate volume of $5.6 billion. 19 debt raises representing approximately $8 million in capital. Led Advisory By Led Advisory By Average enterprise value per M&A transaction of approximately $85 million. Sell-side Unitranche Debt Growth Equity TRANSACTION EXPERTISE M&A Advisory Healthcare INDUSTRY FOCUS Advisory Debt-Private Placement Equity Led Investment By Buy-Side M&A Advisory Enterprise Software s Business Services Fairness Opinions Growth Equity Senior Debt Subordinated Debt PE-Sponsored Transactions Technology-enabled and Outsourced Services Financial Technology and Services Specialty Pharma and Contract Research Organizations Led Advisory By Advisory Advisory Advisory Advisory Advisory Debt Raise THE BEST DEAL. DONE. Advisory Senior Debt Placement Advisory 7