The Software Industry Financial Report

Transcription

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

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3 2015 Annual Software Industry Financial Report Table of 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

4 Investment Banking / Mergers & Acquisitions 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

5 2015 Annual Software Industry Financial Report Index of Figures Figure 1: Global GDP (% YoY Change) Figure 2: U.S. GDP (% YoY Change) Figure 3: U.S. GDP AND UNEMPLOYMENT Figure 4: Global IT Spending (% YoY Change) Figure 5: Global IT Spending by Category Figure 6: U.S. E-Commerce Spend Figure 7: U.S. Digital Advertising Spend Figure 8: STOCK MARKET PERFORMANCE Figure 9: SEG Software Index Median TTM Total Revenue ($M) - Annual Figure 10: SEG Software Index Median Revenue Growth - Annual Figure 11: SEG Software Index Median Revenue Performance Quarterly Figure 12: SEG Software Index TTM Revenue Growth Rate Distribution 4Q14 Figure 13: SEG Software Index Median Gross Profit Margin Annual Figure 14: SEG Software Index Median EBITDA Margin Annual Figure 15: SEG Software Index Median EBITDA Margin Performance Quarterly Figure 16: SEG Software Index TTM EBITDA Margin Distribution 4Q14 Figure 17: SEG Software Index Median Operating Ratios Quarterly Figure 18: SEG Software Index Median Margin Performance Quarterly Figure 19: SEG Software Index Median EV/Revenue Annual Figure 20: SEG Software Index Median EV/EBITDA Annual Figure 21: SEG Software Index Median EV/Revenue and EV/EBITDA Multiples Quarterly Figure 22: SEG Software Index EV/Revenue Multiples by Size (TTM Revenue) Quarterly Figure 23: SEG Software Index EV/Revenue Multiples vs. TTM Revenue Growth 4Q14 Figure 24: SEG Software Index EV/Revenue Multiples vs. TTM EBITDA Margins 4Q14 Figure 25: SEG Software Index By Product Category Figure 26: SEG Software Index By Product Category 4Q14 Median TTM Revenue Growth Figure 27: SEG Software Index By Product Category 4Q14 YoY Change in Median Revenue Growth Figure 28: SEG Software Index By Product Category 4Q14 Median TTM EBITDA Margin Figure 29: SEG Software Index By Product Category 4Q14 YoY Change in Median EBITDA Margin Figure 30: SEG Software Index By Product Category 4Q14 Median EV/Revenue Multiples Figure 31: SEG Software Index By Product Category Median 4Q14 YoY Change in EV/Revenue Figure 32: SEG SaaS Index Median Revenue Growth - Annual Figure 33: SEG SaaS Index Median TTM Total Revenue ($M) - Annual Figure 34: SEG SaaS Index TTM Revenue Growth Rate Distribution 4Q14 Figure 35: SEG SaaS Index Median Revenue Performance Quarterly Figure 36: SEG SaaS Index Median Gross Profit Margin Annual Figure 37: SEG SaaS Index Median EBITDA Margin Annual Figure 38: SEG SaaS Index Median EBITDA Margin Performance Quarterly Figure 39: SEG SaaS Index TTM EBITDA Margin Distribution 4Q14

6 Investment Banking / Mergers & Acquisitions Figure 40: SEG SaaS Index Median Operating Ratios Quarterly Figure 41: SEG SaaS Index Median Margin Performance Quarterly Figure 42: SEG SaaS Index Median EV/Revenue Annual Figure 43: SEG SaaS Index Median EV/EBITDA Annual Figure 44: SEG SaaS Index Median EV/Revenue and EV/EBITDA Multiples Quarterly Figure 45: SEG SaaS Index EV/Revenue Multiple Distribution 4Q14 Figure 46: SEG SaaS Index Public Market Multiples Figure 47: SEG SaaS Index EV/Revenue Multiples vs. TTM Revenue Growth 4Q14 Figure 48: SEG SaaS Index EV/Revenue Multiples vs. TTM EBITDA Margins 4Q14 Figure 49: SEG SaaS Index By Product Category 4Q14 Median TTM Revenue Growth Figure 50: SEG SaaS Index By Product Category 4Q14 YoY Change in Median Revenue Growth Figure 51: SEG SaaS Index By Product Category 4Q14 Median TTM EBITDA Margin Figure 52: SEG SaaS Index By Product Category 4Q14 YoY Change in Median EBITDA Margin Figure 53: SEG SaaS Index By Product Category 4Q14 Median EV/Revenue Multiple Figure 54: SEG SaaS Index By Product Category 4Q14 YoY Change in Median EV/Revenue Figure 55: SEG Internet Index Median TTM Total Revenue ($M) - Annual Figure 56: SEG Internet Index Median Revenue Growth - Annual Figure 57: SEG Internet Index Median Revenue Performance Quarterly Figure 58: SEG Internet Index TTM Revenue Growth Rate Distribution 4Q14 Figure 59: SEG Internet Index Median Gross Profit Margin Annual Figure 60: SEG Internet Index Median EBITDA Margin Annual Figure 61: SEG Internet Index Median EBITDA Margin Performance Quarterly Figure 62: SEG Internet Index TTM EBITDA Margin Distribution 4Q14 Figure 63: SEG Internet Index Median Operating Ratios Quarterly Figure 64: SEG Internet Index Median Margin Performance Quarterly Figure 65: SEG Internet Index Median EV/Revenue Annual Figure 66: SEG Internet Index Median EV/EBITDA Annual Figure 67: SEG Internet Index Median EV/Revenue and EV/EBITDA Multiples Quarterly Figure 68: SEG Internet Index Median EV/Revenue Multiple Distribution 4Q14 Figure 69: SEG Internet Index EV/Revenue Multiples vs. TTM Revenue Growth 4Q14 Figure 70: SEG Internet Index EV/Revenue Multiples vs. TTM EBITDA Margins 4Q14 Figure 71: SEG Internet Index By Product Category Figure 72: SEG Internet Index By Product Category 4Q14 Median TTM Revenue Growth Figure 73: SEG Internet Index By Product Category 4Q14 Median YoY Change in Revenue Growth Figure 74: SEG Internet Index By Product Category 4Q14 Median TTM EBITDA Margin Figure 75: SEG Internet Index By Product Category 4Q14 Median YoY Change in EBITDA Margin Figure 76: SEG Internet Index By Product Category 4Q14 Median EV/Revenue Multiples Figure 77: SEG Internet Index By Product Category Median 4Q14 YoY Change in EV/Revenue Figure 78: Software/SaaS/Internet IPOs Figure 79: SaaS IPOs Figure 80: 2014 IPO Data Figure 81: Venture Capital Activity: Overall VC Activity Figure 82: Venture Capital Activity: VC Activity by Investment Stage Figure 83: Venture Capital Activity: Software VC Activity Figure 84: Venture Capital Activity: Software VC Dollars as a Percent of Total Figure 85: SEG s 2015 Software M&A Outlook Survey Figure 86: Software M&A Deal Volume and Spending - Quarterly Figure 87: Software M&A Deal Volume and Spending - Annual Figure 88: Software M&A Average On-Premise Software EV/Revenue Exit Multiples Figure 89: Software M&A Median EV/Revenue Exit Multiple Distribution Figure 90: Software M&A Median Exit Multiples - Quarterly Figure 91: Software M&A Median EV/Revenue Exit Multiple - Annual

7 Investment Banking / Mergers & Acquisitions Figure 92: Software M&A By Ownership Structure Figure 93: Software M&A By Size Figure 94: Software M&A Horizontal & Vertical M&A Volume Figure 95: Software M&A Horizontal & Vertical M&A Median EV/Revenue Exit Multiples Figure 96: Software M&A Deal Volume By Product Category Figure 97: Software M&A Median EV/Revenue Exit Multiples by Software Product Category Figure 98: SaaS M&A Volume - Quarterly Figure 99: SaaS M&A Volume - Annual Figure 100: SaaS M&A Median SaaS EV/Revenue Exit Multiples - Quarterly Figure 101: SaaS M&A Median SaaS EV/Revenue Exit Multiples - Annual Figure 102: SaaS M&A Median SaaS EV/Revenue By Size Since 1Q10 Figure 103: SaaS M&A Deal Volume By Product Category Figure 104: Internet M&A Deal Volume - Annual Figure 105: Internet M&A Median EV/Revenue Exit Multiples - Annual Figure 106: Internet M&A Deal Volume By Product Category Figure 107: Internet M&A Deal Volume By Product Category - Quarterly Appendix Figure 108: SEG Software Index Companies Key Metrics Figure 109: SEG Software Index Metrics By Product Category Figure 110: SEG SaaS Index Companies Key Metrics Figure 111: SEG SaaS Index Metrics By Product Category Figure 112: SEG Internet Index Companies Key Metrics Figure 113: SEG Internet Index Metrics By Product Category Figure 114: 2014 Select Public Sellers Figure 115: 2014 Select Mega Deals Figure 116: 2014 Most Active Buyers Figure 117: 2014 Select SaaS Transactions

8 The 2015 Software Industry Financial Report, a comprehensive 115 page analysis of 2014 s software industry mergers and acquisitions, initial public offerings, venture capital investments, public software company financial performance and market valuations, and software industry market trends over the past year, is now available for download. The complete Report includes SEG s 2015 Software Industry Buyers Survey, an exclusive survey of corporate development executives from the 300 largest software companies about their M&A plans, priorities, budgets and thinking for the year ahead. Learn what we learned. The Report recaps the financial performance of public Software, SaaS and Internet companies in 2014, and looks deeply and insightfully at 2014 s Software, SaaS and Internet M&A exit valuations, deal volumes and trends. And of course, our 2015 Software Industry Financial Report takes a look at the year ahead, including a forecast of software industry M&A, venture capital and IPO activity in Software Equity Group s research reports are now read and relied upon by over 70,000 software industry senior executives, entrepreneurs, venture capitalists and private equity investors in 74 countries across the globe. Shouldn t you know what they know? Select Report Highlights: 38% of buyers responding to our 2015 Buyers Survey plan to acquire three or more companies this year. What size deals are they targeting? What s most important to them when valuing a target growth, profitability or product? Do they expect to pay more or less this year than last? Our 2015 Buyers Survey asked what percentage of acquisition targets in 2014 were private equity or venture capital-backed versus bootstrapped? We were surprised by their response; you may be, as well. SaaS M&A transactions grew 18% last year, while median SaaS exit multiple was over 60% greater than that paid to on-premise software sellers. Is that really all about the value of recurring revenue, or is there something else at play here? The median exit multiple for on-premise software companies varied widely by product category, from 2.8x TTM revenue to 1.1x. What categories are hot? You ll likely be surprised. Internet M&A volume remains near record levels, how did exit multiples fare? The median EV/Revenue multiple of Public SaaS companies fell compared to 2013, but still remains higher than any previous year since we began tracking of the Index. What was the percentage decline and which product categories were more heavily impacted than others? What do investors really value? Median profitability of public SaaS companies declined significantly in 2014, do investors care? Our SEG On-Premise Software Index saw median TTM revenue growth decline, while EBITDA margins held steady in How did that impact their market valuation? 32 Software/SaaS/Internet companies went public in 2014, surpassing the highs achieved in 2007, 2012 and By year end, some gave investors handsome returns, while others floundered. Which companies and product categories did best? What does this portend for valuations in 2015?

9 Investment Banking / Mergers & Acquisitions 2015 SOFTWARE INDUSTRY FINANCIAL REPORT Executive Summary The Buyers Speak: Software Equity Group s 2015 M&A Buyers Survey In early January 2015, we polled corporate development executives of the 300 largest software companies about their M&A plans, priorities, budgets and thinking for the year ahead. Collectively, the buyers who responded to the survey spent over $8.6 billion across M&A transactions which disclosed metrics in The vast majority (76%) of respondents were public software, SaaS or Internet companies and, in aggregate, their total enterprise value was $239.3 billion at the end of Needless to say, their plans and playbook will heavily influence the software M&A ecosystem in the year ahead. Learn what we learned. Complete survey results and insight are available in the full report. Economy and IT Spending Globally, the IMF estimates GDP growth for all of 2014 was 3.7%, a slight increase over three flat years of ~ 3.3% growth. In 2014, worldwide IT spending growth was 2.1%, virtually flat YoY. Estimates for IT spending in 2015 from Gartner, Forrester, IDC and Goldman are more optimistic, with a blended projection of a 3.7% acceleration in IT spend. Software is expected to benefit most from higher IT spending in 2015, but spending will vary widely by software product category. Public Markets Throughout the global financial crisis, public software companies focused on profitability as a way to maintain investor confidence in the absence of meaningful revenue growth. Even with revenue growth declining in each of the past three consecutive years, public on premise software companies managed to remain focused on the bottom line, achieving a median EBITDA margin in 2014 that was historically consistent with 2013 s 17.5% and 2012 s 17.9%. The median enterprise value to revenue (EV/Revenue) multiple in 2014 for all public companies comprising the SEG Software Index closed at 3.0x, equal to The median TTM revenue growth rate of the 57 public companies comprising the SEG SaaS Index was 28.4%, besting 2013 s 26.0% and 2012 s 25.5% growth rates. The median EV/Revenue of the SEG SaaS Index was lower than 2013 s median of 6.7x, but remained significantly higher than years prior. Public companies comprising the SEG Internet Index grew median TTM revenue 20.6% in 2014, up from 18.7% in 2013, but still sharply lower than 2012 and As for profitability, the median EBITDA margin of public Internet companies increased for the second consecutive year. The median EV/Revenue multiple for the 104 public companies comprising the SEG Internet Index fell very slightly to 2.5x, from 2013 s 2.6x, but remained quite healthy as compared to historical average. Mergers and Acquisitions The U.S. software sector reported $114.8 billion spent across 1,914 mergers and acquisitions in The closest we ve come in the past decade 2014 s M&A deal volume and spend was pre-recession 2007, when roughly $82 billion was spent on 1,894 transactions. The median software industry exit valuation for all of 2013, measured as a multiple of trailing twelve months revenue, was 2.3x, a slight uptick from 2013 (2.2x). Quarterly, the median exit multiple held constant throughout The number of SaaS companies acquired in 2014 grew 18% from 2013 s tally. SaaS acquisitions accounted for 27.8% of all software industry acquisitions in 4Q14, compared to only 6.2% of all software deals just

10 Investment Banking / Mergers & Acquisitions three years ago. SaaS exit valuations declined slightly YoY. And once again, the median SaaS exit multiple in 2014 was significantly higher than the median on-premise exit multiple, although the spread did contract. Following a record breaking 2012, Internet exits declined 10% in 2013, but rose slightly YoY in On a quarterly basis, Internet deals accelerated sequentially throughout the year. After a marked drop in 2012, the Internet s median TTM exit multiple has held steady for the past two years. The median Internet exit multiple can be deceiving since the spread of Internet exit valuations each quarter is considerably wider than SaaS and on-premise software exit valuations. Initial Public Offerings & Venture Capital There were 32 total IPOs in 2014 spanning the on-premise software, SaaS and Internet sectors, easily surpassing each year since we began publishing our report in The breakdown of these new entrants: seven on-premise software, sixteen SaaS, and nine Internet. The number of VC investments and total dollars invested was up in 2014, significantly. The number of VC investments in software companies accelerated in 2014 to 1,799. As a percent of total VC dollars invested across all industry sectors, software now accounts for 41% of total, as compared to 19% in Want the data? Want all the details? PURCHASE THE COMPLETE 2015 SOFTWARE INDUSTRY FINANCIAL REPORT HERE:

11 To keep your finger on the pulse of the software equity markets, subscribe to our Monthly and Quarterly Reports at Software Equity Group is an investment bank and M&A advisory serving the software and technology sectors. Since 1992, our firm has represented and guided private companies throughout the United States and Canada, as well as Europe, Asia Pacific, Africa and Israel. We have advised public companies listed on the NASDAQ, NYSE, American, Toronto, London and Euronext exchanges. Software Equity Group also represents several of the world's leading private equity firms. For a confidential consultation without obligation, please contact Kris Beible, Director, Business Development ( , kbeible@softwareequity.com). CONTACT INFORMATION: Software Equity Group, L.L.C El Camino Real, Suite 320 San Diego, CA p: (858) f: (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. Copyright 2015 by Software Equity Group, L.L.C., All Rights Reserved