Industry Update Software Development Industry Q4 2017

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1 Industry Update Software Development Industry Q New York Boston Chicago Orlando Philadelphia Princeton Page 1

2 Table of Contents * Industry Overview... 1 In the News... 3 Key Indicators... 4 M&A Overview... 5 Public Market Data... 7 About MPI * This publication is also available in soft copy on the MPI website: Page 1

3 Industry Overview This publication focuses on major events, developments and trends within various segments of the Software Development Industry: business solutions, customer relationship management ( CRM )/marketing, IT/data management/data analysis, design/development, diversified, entertainment, financial/accounting, security, supply chain/enterprise resource planning ( ERP ), and other software development. This industry as a whole is highly fragmented and continuously evolving. The Software Development Industry is currently in the growth phase of its life cycle, and is projected to continue to grow at a healthy rate into the future. Other important trends and factors relevant to all segments of the Software Development Industry include: Number of Mobile Internet Connections: 1 Broadband-enabled smartphones make heavy use of microchips and have very short technology life cycles. As newer, more advanced smartphones are continually introduced to the market, demand for EDA (electronic design automation) software used to develop advanced microchips increases. The number of mobile internet connections is expected to increase by 9.6% in Private Investment in Computers and Software: Private investment in computers and software represents the extent to which businesses will invest in industry software licenses, maintenance services and training programs. More generally, this driver reflects business adoption of computer technology, which increases demand for microchips and, therefore, software to design microchips. Private investment in computers and software is expected to increase by 3.1% in Percentage of Services Conducted Online: 2 Services and sales conducted online are growing as the internet becomes more intertwined with all aspects of day to day life. As online activity grows, businesses are requiring POS (point of sale) software that is integrated with the internet, as users can make purchases and reservations online. The percentage of services conducted online will increase by approximately 12.0% in As the stock price performance graph on the following page shows, each segment of the Software Development Industry has outpaced the S&P 500 over the last five years, with the exception of the other and IT/data management/data analysis segments. In particular, the entertainment segment has led the charge and continues to outpace other subsectors and the S&P. 1 Haddad, Jonathan (2017, November). Electronic Design Automation Software Developers in the US. IBISWorld Report OD4540. Retrieved from IBISWorld database. 2 Gambardella, Anthony (2017, August). Online Payment Processing Software Developers in the US. IBISWorld Report OD4521. Retrieved from IBISWorld database. Page 1 1

4 800% Quarterly Benchmark Performance* 700% 600% 500% 400% 300% 200% 100% 0% -100% Business Solutions CRM/Marketing IT/Data Management/Data Analysis S&P 500 Design/Development Diversified Entertainment Financial/Accounting Other Security Supply Chain/ERP Source: S&P Capital IQ. * Includes selected companies presented on pages Chart above is presented on an index basis: Q Page 2 2

5 In the News A newly released report, unveiled this morning by Software.org: the BSA Foundation, found that the software industry added $564.4 billion in direct value added to the U.S. gross domestic product in 2016, marking an 18.7 percent increase from Additionally, because so many industries rely on software, the report said the industry is responsible for $1.14 trillion in indirect and induced benefits to the U.S. economy last year. Software companies are putting more money into future technologies, as well. The report found that the software industry invested more than $63 billion in research and development in 2013, the most recent year for which data was available. That sum is up 21 percent over the prior year. Software industry employment has seen significant growth in recent years. The industry accounted for 2.9 million jobs in 2016, a 14.6 percent increase over Put another way, the industry has added more than 350,000 jobs since (The Business Journals, 9/26) Hewlett Packard Enterprise Co (HPE.N) completed the spin-off of much of its software business early on Friday, closing the door on the disastrous 2011 acquisition of British firm Autonomy and narrowing the company s focus to data center hardware and software. The enterprise software businesses, which include the widely used ArcSight security platform, have been merged with Micro Focus International Plc (MCRO.L), a British software company. HPE was formed when the company once known as Hewlett-Packard split into HPE and HP Inc in November HPE aims to cater specifically to customers running services both on their own premises and in the cloud, said Ric Lewis, senior vice president of HPE s cloud software group, in an interview. The challenge now for HPE will be to quickly build new software for mixed data center environments, said Tom Bittman, an analyst with Gartner. They have the hardware, they have the networking, but software is key here, and they have to push hard, Bittman said. (Reuters, 9/1) Many software companies, including Microsoft, could see significant changes in their revenue patterns with the rollout of the revenue recognition standard that takes effect at the end of the year, according to a new study. The study notes that when Microsoft reported 2017 revenues on August 2 under the new revenue standard for the first time, the software giant had to adjust its 2016 revenues upward by 6.8 percent and its 2017 revenues upward 7.3 percent. Other companies may need to adjust downward. This should set off alarm bells for at least some investors, said Calcbench CEO Pranav Ghai in a statement. We found lots of companies that could potentially see material changes in their revenue reporting not definitely, but potentially and yet they ve disclosed very little to investors, even with the new standard taking effect only four months from now. (Accounting Today, 8/23) Companies are refreshing enterprise software platforms for the cloud era and stitching together new systems to support digital business projects, triggering an uptick in IT spending worldwide. Gartner is forecasting a 2.4 percent increase in global IT spending this year, amounting to $3.5 trillion, up from an anemic 0.3 percent growth last year. The big driver of growth is enterprise software spending, expected to jump 7.6 percent this year, hitting $351 billion, according to the market research and consulting company. (CIO, 7/13) Page 3 3

6 Key Indicators Number of Mobile Internet Connections Number of Connections (Millions) Year Percentage of Services Conducted Online Percentage (%) Year Private Investment in Computers and Software $ (Billions) Year Source: IBISWorld. Page 4 4

M&A Overview Highlighted Transactions Cisco Systems, Inc. Agrees to Acquire Broadsoft, Inc. Cisco Systems, Inc. entered into an agreement to acquire BroadSoft, Inc.

Post-acquisition, shares of BroadSoft will be delisted from the NASDAQ Global Select Market, and BroadSoft will become a wholly-owned subsidiary of Cisco.

P., managed by Elliott International Capital Advisors Inc. entered into an agreement to acquire remaining 93% stake in Gigamon Inc. for $1.5 billion on October 26, 2017.

Marlin Equity Partners, through its funds Marlin Equity IV LP and Marlin Equity V LP, entered into a definitive agreement to acquire Bazaarvoice, Inc.

7 M&A Overview Highlighted Transactions Cisco Systems, Inc. Agrees to Acquire Broadsoft, Inc. Cisco Systems, Inc. entered into an agreement to acquire BroadSoft, Inc. from Brown Advisory Incorporated, BlackRock, Inc., Wellington Management Company LLP, Vanguard Ventures and others for $1.8 billion on October 20, Post-acquisition, shares of BroadSoft will be delisted from the NASDAQ Global Select Market, and BroadSoft will become a wholly-owned subsidiary of Cisco. Qatar Investment Authority, Elliott Associates, L.P., and Elliott International, L.P. Agree to Acquire 93% Stake in Gigamon Inc. Qatar Investment Authority, Elliott Associates, L.P., managed by Elliott Management Corporation and Elliott International, L.P., managed by Elliott International Capital Advisors Inc. entered into an agreement to acquire remaining 93% stake in Gigamon Inc. for $1.5 billion on October 26, Post-completion, Gigamon will be a privately held company, and no longer traded on the New York Stock Exchange. Marlin Equity Partners Agrees to Acquire Bazaarvoice, Inc. Marlin Equity Partners, through its funds Marlin Equity IV LP and Marlin Equity V LP, entered into a definitive agreement to acquire Bazaarvoice, Inc. for approximately $520 million on November 26, Upon completion of the transaction, Bazaarvoice will become a privatelyheld company and maintain its headquarters in Austin, Texas. Thoma Bravo Agrees to Acuire Barracuda Networks, Inc. Source: S&P Capital IQ Thoma Bravo entered into a non-binding letter of intent to acquire Barracuda Networks, Inc. for $1.6 billion on November 3, Upon the closing of the transaction, Barracuda Networks will operate as a privately-held company as Barracuda Networks, Inc. Page 5 5

8 M&A Overview, cont d Industry Trends M&A Activity (Announced Transactions) Median M&A EBITDA Multiples Total Deal Value ($bn) # of Deals Overall Median (23.1x) $35.0 $30.0 $31.1 $ x $25.0 $20.0 $15.0 $10.0 $19.4 $14.6 $ x 18.6x 21.0x 23.1x $5.0 5 $ Recent Transactions Announced Date Buyer Target Target Description 12/13/2017 Keywords Studios plc Sperasoft, Inc. Sperasoft, Inc. offers game development, art studio, and online services. 11/28/2017 Appen Limited Leapforce, Inc. Leapforce, Inc. develops a search relevance platform. 11/3/2017 Thoma Bravo, LLC; Thoma Bravo Fund XII, L.P. 11/26/2017 Marlin Equity Partners, LLC; Marlin Equity IV LP; Marlin Equity V Barracuda Networks, Inc. Barracuda Networks, Inc. designs and delivers security and data protection solutions. Bazaarvoice, Inc. Bazaarvoice, Inc. provides marketing tools to retailer and brand clients for understanding consumer voice. 11/20/2017 Warburg Pincus LLC CYREN Ltd. CYREN Ltd., together with its subsidiaries, provides information security solutions for protecting Web, , and mobile transactions in the United States, Germany, Europe, Asia, Israel, and internationally. 10/26/2017 Elliott Management Corporation; Elliott Associates, L.P.; Qatar Investment Authority; Elliott International Capital Advisors Inc.; Elliott International, L.P. Gigamon Inc. Gigamon Inc. develops and delivers solution that delivers visibility and control of data-in-motion traversing enterprise, federal, and service provider networks in the United States, rest of Americas, Europe, the Middle East, Africa, and the Asia Pacific. 10/20/2017 Cisco Systems, Inc. BroadSoft, Inc. BroadSoft, Inc. provides software and services that enable telecommunications service providers to deliver hosted cloud-based unified communications (UC) to their enterprise customers in North America, Europe, the Middle East, and Africa. 10/17/2017 Siris Capital Group, LLC IntraLinks Holdings, Inc. IntraLinks Holdings, Inc. provides software-as-a-service (SaaS) solutions for secure enterprise content collaboration within and among organizations in the United States and internationally. Source: S&P Capital IQ* * Only includes deals taking place in the United States. Page 6 6

9 Public Market Data Company Guideline 12/29/ Week Enterprise EV/EBITDA EBITDA Margin EV/Revenue Ticker Close (2) High Low Value (EV) (3) LTM NFY LTM NFY LTM NFY Business Solutions BroadSoft, Inc. BSFT , x 16.8x 6.6% 24.5% 4.38x 4.12x Akamai Technologies, Inc. AKAM , x 11.9x 26.8% 37.0% 4.44x 4.38x Constellation Software Inc. CSU , x 25.1x 15.0% 26.0% 6.80x 6.52x Majesco MJCO NM 38.0x 1.4% 4.4% 1.75x 1.67x Fair Isaac Corporation FICO , x 19.8x 22.7% 26.0% 5.46x 5.13x The Ultimate Software Group, Inc. ULTI , x 29.8x 7.7% 23.0% 7.10x 6.84x LogMeIn, Inc. LOGM , x 15.5x 24.6% 36.3% 7.17x 5.65x Bottomline Technologies (de), Inc. EPAY , x 17.0x 10.1% 22.9% 4.15x 3.90x Open Text Corporation OTEX , x 12.1x 27.2% 36.1% 4.86x 4.35x QAD Inc. QADA x 39.6x 2.9% 5.0% 2.00x 1.98x Enghouse Systems Limited ENGH , x 16.0x 22.5% 27.8% 4.71x 4.44x Monotype Imaging Holdings Inc. TYPE x 20.6x 8.1% 20.4% 4.38x 4.19x LivePerson, Inc. LPSN x 34.7x 5.3% 8.3% 2.90x 2.89x Citrix Systems, Inc. CTXS , x 13.5x 28.5% 34.4% 3.80x 4.66x Paylocity Holding Corporation PCTY ,379 NM 31.8x 7.1% 20.2% 7.63x 6.43x Paycom Software, Inc. PAYC , x % 30.7% 11.43x 10.76x RealPage, Inc. RP , x 24.4x 14.0% 24.1% 6.26x 5.89x Ellie Mae, Inc. ELLI , x 22.8x 20.5% 28.9% 6.80x 6.60x Bandwidth Inc. BAND x 21.9x 12.4% 13.0% 3.72x 2.85x AppFolio, Inc. APPF ,366 NM 50.7x 7.0% 19.0% 10.20x 9.63x Median 40.5x 22.3x 13.2% 24.3% 4.79x 4.55x 4 s - Business Solutions x x 32.5x x 20.6x 18.3x 20.5x 24.4x Average of Medians (27.0x) Page 7 7

10 Public Market Data, cont d Company Guideline 12/29/ Week Enterprise EV/EBITDA EBITDA Margin EV/Revenue Ticker Close (2) High Low Value (EV) (3) LTM NFY LTM NFY LTM NFY CRM/Marketing Five9, Inc. FIVN ,367 NM 84.5x 2.9% 8.2% 7.23x 6.94x Salesforce.com, inc. CRM ,800 NM 32.5x 5.6% 21.4% 7.34x 6.97x Verint Systems Inc. VRNT , x 12.3x 8.7% 22.3% 2.82x 2.75x Pegasystems, Inc. PEGA , x 36.9x 6.9% 11.6% 4.34x 4.30x Blackbaud, Inc. BLKB , x 24.4x 18.0% 24.7% 6.19x 6.03x Bazaarvoice, Inc. BV x 14.8x 0.4% 13.0% 1.96x 1.93x Quotient Technology Inc. QUOT NM 19.3x 2.4% 14.6% 2.98x 2.82x SendGrid, Inc. SEND ,069 NM 99.5x 6.0% 9.8% 10.35x 9.74x CDK Global, Inc. CDK , x 13.7x 27.2% 35.5% 5.01x 4.87x Median 34.4x 24.4x 6.0% 14.6% 5.01x 4.87x IT/Data Management/Data Analysis Commvault Systems, Inc. CVLT ,930 NM 20.7x 0.7% 13.2% 2.87x 2.73x MicroStrategy Incorporated MSTR x 8.3x 19.1% 20.6% 1.69x 1.72x Carbonite, Inc. CARB x 14.6x 3.5% 19.2% 2.99x 2.82x VMware, Inc. VMW , x 14.9x 26.1% 36.8% 6.08x 5.48x SailPoint Technologies Holdings, Inc. SAIL , x 71.1x 11.0% 12.5% 9.52x 8.90x CA, Inc. CA , x 8.7x 29.4% 38.0% 3.44x 3.32x Median 23.3x 14.8x 15.1% 19.9% 3.22x 3.07x s - CRM/Marketing s - IT/Data x 16.9x 18.3x 22.3x 21.4x 26.7x 34.4x x 31.9x 23.9x 26.3x 27.7x 14.5x 23.3x 10.4x Average of Medians (25.8x) Average of Medians (22.3x) Page 8 8

11 Public Market Data, cont d Company Guideline 12/29/ Week Enterprise EV/EBITDA EBITDA Margin EV/Revenue Ticker Close (2) High Low Value (EV) (3) LTM NFY LTM NFY LTM NFY Design/Development Synopsys, Inc. SNPS , x 15.3x 18.8% 26.4% 4.32x 4.05x Cadence Design Systems, Inc. CDNS , x 18.7x 22.8% 32.4% 6.16x 6.08x PTC Inc. PTC , x 25.5x 9.5% 23.6% 6.42x 6.02x Ansys, Inc. ANSS , x 21.8x 43.9% 49.0% 10.91x 10.69x Altium Limited ALU , x 30.1x 35.3% 33.2% 15.07x 9.99x Progress Software Corporation PRGS , x 10.2x 35.0% 47.6% 4.95x 4.87x Red Hat, Inc. RHT , x 25.8x 19.1% 27.0% 7.31x 6.98x Median 27.0x 21.8x 22.8% 32.4% 6.42x 6.08x Diversified Microsoft Corporation MSFT , x 14.5x 34.7% 39.9% 6.65x 5.78x Adobe Systems Incorporated ADBE , x 21.0x 34.2% 44.7% 11.29x 9.41x Oracle Corporation ORCL , x 9.9x 38.9% 46.8% 4.76x 4.65x Median 19.2x 14.5x 34.7% 44.7% 6.65x 5.78x s - Design/Development s - Diversified x 10.3x 15.6x 15.6x 17.2x 18.2x 27.0x 18.0x 16.0x 14.0x 12.0x 8.0x 6.0x 11.2x 6.7x 9.0x 9.8x 11.0x 12.6x 14.4x 19.2x 4.0x 2.0x Average of Medians (16.9x) Average of Medians (11.7x) Page 9 9

12 Public Market Data, cont d Company Guideline 12/29/ Week Enterprise EV/EBITDA EBITDA Margin EV/Revenue Ticker Close (2) High Low Value (EV) (3) LTM NFY LTM NFY LTM NFY Entertainment Activision Blizzard, Inc. ATVI , x 18.9x 32.8% 36.6% 6.96x 6.93x Electronic Arts Inc. EA , x 16.1x 30.9% 34.8% 5.70x 5.62x Take-Two Interactive Software, Inc. TTWO , x 22.3x 10.6% 25.0% 5.92x 5.58x Median 21.2x 18.9x 30.9% 34.8% 5.92x 5.62x Financial/Accounting Intuit Inc. INTU , x 18.7x 30.9% 37.9% 7.65x 7.08x SS&C Technologies Holdings, Inc. SSNC , x 15.1x 37.2% 41.3% 6.38x 6.23x ACI Worldwide, Inc. ACIW , x 13.1x 18.6% 24.8% 3.19x 3.25x Envestnet, Inc. ENV , x 8.9% 17.7% 3.69x 3.56x Median 20.9x 16.9x 24.8% 31.4% 5.03x 4.90x Other Rosetta Stone Inc. RST x 21.8x 1.7% 5.9% 1.26x 1.29x Nuance Communications, Inc. NUAN , x 10.6x 17.8% 30.0% 3.36x 3.18x Alarm.Com Holdings, Inc. ALRM , x 25.6x 17.1% 20.6% 5.52x 5.29x Tyler Technologies, Inc. TYL , x 25.7x 22.4% 29.9% 7.95x 7.69x NIC Inc. EGOV x 11.0x 25.1% 25.7% 2.86x 2.84x Median 32.3x 21.8x 17.8% 25.7% 3.36x 3.18x 3 s - Entertainment 3 s - Finance/Accounting 21.2x 22.9x 22.4x 20.9x 11.7x 17.4x 14.1x 11.3x 14.3x 16.5x 17.8x 8.9x 7.4x 7.4x 6.5x Average of Medians (12.5x) Average of Medians (17.5x) 4 s - Other x x 18.5x 23.7x 23.7x 25.6x 21.5x 21.4x Average of Medians (23.0x) Page

13 Public Market Data, cont d Company Guideline 12/29/ Week Enterprise EV/EBITDA EBITDA Margin EV/Revenue Ticker Close (2) High Low Value (EV) (3) LTM NFY LTM NFY LTM NFY Security Barracuda Networks, Inc. CUDA , x 17.9x 8.6% 18.7% 3.40x 3.34x Symantec Corporation SYMC , x 8.6x 13.0% 49.8% 4.72x 4.28x Fortinet, Inc. FTNT , x 20.5x 11.8% 20.7% 4.39x 4.25x Qualys, Inc. QLYS , x 23.0x 25.8% 36.8% 8.85x 8.47x ForeScout Technologies, Inc. FSCT ,445 NM NM NM NM 7.07x 6.65x VASCO Data Security International, Inc. VDSI x 20.7x 5.6% 10.1% 2.12x 2.09x Median 37.3x 20.5x 11.8% 20.7% 4.55x 4.26x Supply Chain/ERP Aspen Technology, Inc. AZPN , x 20.5x 44.8% 48.2% 10.05x 9.90x The Descartes Systems Group Inc DSG , x 34.4x 33.1% 34.0% 12.23x 11.70x SPS Commerce, Inc. SPSC x 21.1x 10.9% 14.5% 3.15x 3.06x CommerceHub, Inc. CHUB.K x 19.8x 26.1% 40.7% 8.43x 8.08x American Software, Inc. AMSW.A x 14.0x 13.9% 17.8% 2.55x 2.49x Median 29.0x 20.5x 26.1% 34.0% 8.43x 8.08x s - Security s - Supply Chain/ERP x 37.3x x 31.0x 29.0x 20.3x 22.4x 24.8x 21.0x 20.5x 14.7x 17.8x 18.1x 13.1x 15.5x 6.2x Average of Medians (22.7x) Average of Medians (21.7x) Notes: (1) Source: As reported by S&P Capital IQ. (2) Reported in local currency. (3) In millions of local currency. (4) Represents two-year analyst estimates. Definitions: Enterprise Value defined by S&P Capital IQ as market cap. + total debt + preferred equity + total minority interest cash and equivalents LTM latest twelve months. EBITDA adjusted earnings before interest, taxes, depreciation and amortization. NFY next fiscal year. EPS earnings per share. NA not available, NM not meaningful. Page

14 About MPI Management Planning Inc., a prestigious national consulting firm founded in 1939, specializes in business valuation, forensic accounting, litigation support and corporate advisory work. MPI provides fairness opinions, sell-side and buy-side advisory services through its investment banking affiliate MPI Securities, Inc. MPI conducts every project as if it is going to face the highest level of scrutiny, and its senior professionals have extensive experience presenting and defending work product in front of financial statement auditors, management teams, corporate boards and fiduciaries, the IRS, other government agencies, and in various courts. For additional information pertaining to MPI or MPIS and our valuation and advisory services, visit For More Information Please Contact: Mark E. Lingerfield, ASA James J. McCrane, CFA Partner Vice President (609) (609) mlingerfield@mpival.com jmccrane@mpival.com DISCLAIMERS: The information provided in this publication is only general in nature. It has been prepared without taking into account any specific objectives, financial circumstances or needs. Accordingly, MPI disclaims any and all guarantees, undertakings and warranties, expressed or implied, and shall not be liable for any loss or damage whatsoever (including human or computer error, negligent or otherwise, or actual, incidental, consequential or any other loss or damage) arising out of or in connection with any use or reliance upon the information or advice contained within this publication. The viewer must accept sole responsibility associated with the use of the material in this publication, irrespective of the purpose for which such use or results are applied. This material should not be viewed as advice or recommendations. This information is not intended to, and should not, form a primary basis for any investment, valuation or other decisions. MPI is not acting as a fiduciary, an expert or advisor in any capacity whatsoever in providing the information set forth herein. The information set forth herein may not be relied upon and is not a substitute for competent legal and financial advice. The viewer of this material is cautioned and advised to consult with his or her own legal and financial counsel in evaluating the information provided herein. The information provided in this publication is based on public information. MPI makes every effort to use reliable and comprehensive information, but makes no warranties or representations of any kind relating to the accuracy, completeness or timeliness of the information provided herein and MPI shall not have liability for any damages of any kind relating to any reliance on such data. Further, the information set forth herein is continuously subject to change and may fluctuate. MPI has no obligation to update the information set forth herein or to advise the viewer when opinions or information may change. Investment banking and transaction advisory services are provided by MPI Securities, Inc., member FINRA/SIPC. Persons affiliated with MPI Securities, Inc. are registered representatives of and securities are offered through MPI Securities, Inc. This publication is not a solicitation or offer to buy or sell securities. The information contained in this publication was prepared for information purposes only and was not intended or written to be used as investment or tax advice or as a recommendation to buy or sell securities. Page

Market Report M&A Market Snapshot Q2 2018

Market Report M&A Market Snapshot Q2 2018 New York Boston Chicago Orlando Philadelphia Princeton www.mpival.com Table of Contents Total U.S. Market Activity Overview... 1 Transaction Multiples... 3 Private