technology private capital market update q3 2013

PRIVATE AND CONFIDENTIAL TECHNOLOGY FOCUS. BROAD REACH. OPTIMAL RESULTS.

Technology Private Capital Market Update

Q3 2013

Peter Falvey

Managing Director

[email protected]

P. 1.617.598.0437

Jeffrey Monk

Analyst

[email protected]

P. 1.617.598.0445

Jeffrey Cook

Vice President

[email protected]

P. 1.617.598.0439

2

I. Technology Private Equity Market Update

3

$5.1

$0.6

$5.5

$11.3

$4.4

$2.7

$8.1 $7.3

$10.3 $9.4 $9.4

$8.9

$6.7 $6.1

$11.0 $11.1

$4.0

$8.9

$11.7

76 79

91

112 115

68

113 109

117

139

114 109

133

123

117

135

100

139 141

0

20

40

60

80

100

120

140

160

$0.0

$2.0

$4.0

$6.0

$8.0

$10.0

$12.0

$14.0

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2009 2010 2011 2012 2013

De

al Co

un

t A

mo

un

t In

vest

ed

Total Capital Invested ($B) Deal Count

Technology Private Equity Investing Posts Record Quarter...

TECHNOLOGY PRIVATE EQUITY INVESTING ACTIVITY

Source: PitchBook. Data Includes closed transactions only.

* Capital invested data excludes transactions with undisclosed transaction amounts.

Following a weak first half of 2013, large deals helped drive a rebound in Q3, with total

capital invested reaching $11.7B, the highest level in the post-recession era

($B)

4

...as Middle Market Leveraged Lending Trends Improve

The leveraged loan market continues to improve, fueled by low rates and availability of debt

MIDDLE MARKET LEVERAGED CASH FLOW TRENDS

KEY BASELINE INTEREST RATES

Source: Market Intelligence

Rate October 2013 October 2012

Fed Funds Target Rate 0.25% 0.25%

US Prime Rate 3.25% 3.25%

3-Month LIBOR 0.24% 0.31%

Metric October 2013 October 2012

CF Senior Debt (x EBITDA): 1.50 - 2.50x 1.50 - 2.25x

Total Debt Limit (x EBITDA): 3.00 - 4.25x 3.00 - 4.00x

Senior Cash Flow Pricing L+ 3.5% - 4.5% (bank)

L+ 4.5% - 6.5% (non-bank)

L+ 3.0% - 4.5% (bank)

L+ 4.5% - 6.0% (non-bank)

Subordinated Debt Pricing 14.0% - 17.0% 14.0% - 17.0%

"One Stop" Pricing: 9.0% - 11.5% Fixed

L+ 7.5% - 9.0% Floating

10.0% - 11.5% Fixed

L+ 9.0% - 10.0% Floating

Minimum Equity Contribution 25% - 35% 25% - 35%

5

Private Equity Fundraising Remains at Record Levels...

PRIVATE EQUITY FUNDRAISING ACTIVITY BY QUARTER


* Capital invested data excludes transactions with undisclosed transaction amounts.

The success of smaller funds and an absence of new mega-funds has resulted in a

median fund size of $255M in Q3 2013, $100M lower than the year-ago period

($B)

$66 $35

$10

$29

$17 $12

$6 $9

$44

$16 $16 $16

$26

$40

$20 $25 $25

$48

$24

49

30

11

27

40

26

20

31

45

27 27

31

36 38

26 28

29 30

46

0

10

20

30

40

50

60

$0

$10

$20

$30

$40

$50

$60

$70


2009 2010 2011 2012 2013

# o

f Fu

nd

s

Cap

ita

l R

ais

ed

Total Capital Raised ($B) Number of Funds

6

$30

$57

$31

$18

$66

$109

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

$500

$0

$20

$40

$60

$80

$100

$120

2007 2008 2009 2010 2011 2012

Cum

ula

tive

Ove

rha

ng

($B

) Ove

erh

an

g b

y V

inta

ge

($

B)

Cumulative Overhang Overhang by Vintage

...as Firms Continue to Chip Away at the Near-Record Overhang

Significant amount of ‘dry powder’ built-up from large fund raises prior to the financial crisis

Successful fundraising in recent quarters ensuring no shortcoming of dry powder in coming

years

Source: PitchBook

PE FUNDRAISING BY YEAR

Source: PitchBook

CAPITAL OVERHANG BY VINTAGE

Cumulative Overhang

$348B

PE Firms continue to chip away at the significant amount of ‘dry-powder’ while the

fundraising environment continues to improve

$239 $223 $140 $44 $91 $111 $105

272

235

117 117

130 128

97

0

50

100

150

200

250

300

$0

$50

$100

$150

$200

$250

$300

2007 2008 2009 2010 2011 2012 2013*

Capital Raised ($B) # of Funds

7

Technology Private Equity Portfolio Company Exits Rebound

TECHNOLOGY PRIVATE EQUITY PORTFOLIO COMPANY EXIT ACTIVITY


* Total exit value data excludes transactions with undisclosed transaction amounts.

After a weak H1 2013, tech PE portfolio company sales posted a record quarter, with

37 exits contributing to $32.8B in exit value

($B)

$6.4 $0.6 $1.6

$6.4

$10.9

$4.3

$7.5

$12.4 $11.3 $10.2 $10.7

$5.1

$13.8

$7.2

$25.0

$14.1

$7.5 $7.0

$32.8

8

19

14

23

31

21

38

41 39

41

36 36

48

25

38

43

34

31

37

0

10

20

30

40

50

60

$0.0

$5.0

$10.0

$15.0

$20.0

$25.0

$30.0

$35.0


2009 2010 2011 2012 2013

Exit C

ou

nt E

xit

Valu

e

Total Exit Value ($B) Exit Count

8

$35

$85 $80

$76

$70

$43

$65

$47

$23

$119

$50 $50 $51 $50

$0

$20

$40

$60

$80

$100

$120

$140

1Q'11 2Q'11 3Q'11 4Q'11 1Q'12 2Q'12 3Q'12 4Q'12 1Q'13 2Q'13 3Q'13 YTD2011

YTD2012

YTD2013

Larger Deals Fueling Strategic Technology M&A Activity

Technology M&A market marked by consolidation from major tech acquirers as they

snap up sector leaders leading to fewer, but larger deals

STRATEGIC M&A MEDIAN DEAL SIZE

Source: PitchBook

NOTABLE CASH POSITIONS

$50.6B

$11.8B

$10.2B

$79.9B

$39.1B

$13.3B

$5.8B

36 $1B+ strategic

acquisitions since

beginning of 2011

$10.6B

($MM)

9

$0.6

$1.7

$0.4 $0.5 $1.0

$2.3

$1.6 $1.1

$4.8

$0.3

$1.6 $1.6

$0.9 $0.7 $1.0

$0.4

$2.5

$1.1 0

5

2

3

5

14

12

11

9

17

3

7

12

9

6

5 5

14

9

0

2

4

6

8

10

12

14

16

18

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0


2009 2010 2011 2012 2013

IPO

Co

un

t

Am

ou

nt

Rais

ed

Amount Raised ($B) IPO Count

Technology IPO Market Rebounding

Source: PitchBook, CapitalIQ

TECHNOLOGY IPO MARKET

Capital Raised

Excludes Facebook’s

$16B IPO

After a weak start to 2013, the inconsistent / sporadic tech IPO market is beginning to

stabilize, posting a solid Q2 – Q3 of 23 IPOs accumulating $3.6B in raised capital

($B)

10

Recent High-Profile Technology Transactions

Robust demand and activity in SaaS, e-learning and social media sectors

Interest from PE and strategic buyers driving valuations higher

─ Dell bidding war between Silver Lake and Icahn Enterprises

─ Quest bidding war between Dell and Insight Venture Partners

PRIVATE EQUITY STRATEGIC

August 2012

Has received an

investment from

July 2012

Has been

acquired by

August 2012

Has been

acquired by

May 2012

Has been

acquired by

August 2012

Has been

acquired by

December 2011

Has been

acquired by

September 2012

Has been

acquired by

January 2012

Has been

acquired by

May 2012

Has been

acquired by

December 2012

Has been

acquired by

November 2012

Has been

acquired by

May 2013

Has been

acquired by

January 2013

Has been

acquired by

May 2013

Has been

acquired by

May 2013

Has been

acquired by

August 2012

Has been formed by

portfolio companies of

April 2012

Has been

acquired by

June 2013

Has been

acquired by

June 2013

Has been

acquired by

June 2013

Has been

acquired by

June 2013

Has been

acquired by

June 2012

Has been

acquired by

September 2013

Has been

acquired by

Devices & Services

Business

October 2013

Has been

acquired by

11

II. Venture Capital Market Update

12

Overall Venture Capital Investing Continues to Rise…

Venture capital investing has continued at its steady incline through 2013. The $7.8B

invested in Q3 represents the largest quarterly outflow of VC since Q2 2011

QUARTERLY VENTURE CAPITAL INVESTING ACTIVITY

Source: NVCA, PWC MoneyTree

($B)

$3.8

$5.1 $5.4

$5.9

$5.1

$7.1

$5.4 $5.7

$6.5

$8.2 $7.5 $7.4

$6.3

$7.4

$6.6 $6.8

$6.0

$7.0

$7.8

681

762 765

941

821

1,023

886 910 904

1,081

1,015 991

876

979 937

1,034

906

956

1,005

-

200

400

600

800

1,000

1,200

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

$7.0

$8.0

$9.0


2009 2010 2011 2012 2013

Deal C

ou

nt

Am

ou

nt

Inv

este

d

Amount Invested ($B) Deal Count

13

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

3Q'11 4Q'11 1Q'12 2Q'12 3Q'12 4Q'12 1Q'13 2Q'13 3Q'13

Seed Early Stage Expansion Later Stage

…as Early-Stage Deals Continue to Gain Momentum

Early-stage deals continue to gain momentum, rising sharply after a weak Q1 and

outpacing both expansion and later-stage deals in the previous two quarters


($B)

QUARTERLY VENTURE CAPITAL INVESTING ACTIVITY

14

VC Fundraising Still Lagging

$11.6B has been raised by VCs YTD in 2013, significantly below levels seen for the

same period in recent years

QUARTERLY VC FUNDRAISING


NOTABLE RECENT FUNDS

$3,500M

$2,600M

$2,000M

$1,250M

$900M

$750M

$2,700M

($B)

$8.1

$2.7 $2.1

$6.1

$4.8

$6.3

$5.2

$3.4

$4.3

$3.2

$4.1

$12.9

$16.4

$11.6

$0.0

$2.0

$4.0

$6.0

$8.0

$10.0

$12.0

$14.0

$16.0

$18.0

1Q'11 2Q'11 3Q'11 4Q'11 1Q'12 2Q'12 3Q'12 4Q'12 1Q'13 2Q'13 3Q'13 YTD2011

YTD2012

YTD2013

15

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

2007 2008 2009 2010 2011 2012

Cumulative Overhang

VC Overhang Continues to Dwindle Amid Smaller Funds

Average VC fund size has been cut in half since peaking in 2011

Stable investing during slower recent fundraising quarters contributing to decrease in dry

powder

Source: PitchBook

AVERAGE VC FUND SIZE

Source: PitchBook

VC CAPITAL OVERHANG

Cumulative Overhang

$53B

At the current investing rate it will take ~8 quarters for VC firms to wipe out the

current amount of VC ‘dry powder’

$270

$215

$178

$201

$301

$191

$149

$0

$50

$100

$150

$200

$250

$300

$350

2007 2008 2009 2010 2011 2012 2013*

Average Fund Size ($M)

* As of 6/30/13

($MM) ($B)

16

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

$7.0

$8.0

$9.0

1Q'09 2Q'09 3Q'09 4Q'09 1Q'10 2Q'10 3Q'10 4Q'10 1Q'11 2Q'11 3Q'11 4Q'11 1Q'12 2Q'12 3Q'12 4Q'12 1Q'13 2Q'13 3Q'13

Capital

Inflows

Stable VC Investing Overshadowing Decreased Fundraising

While VCs continue to put capital to work from prior funds, capital inflows are well

below 2011 highs and are still tracking lower

QUARTERLY VC INFLOWS / OUTFLOWS


($B) Capital

Outflows

17

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3

2010 2011 2012 2013

Software Companies Continue to be Most Attractive Targets for VCs

$3.6B invested in software companies in Q3 represents 46 percent of all VC invested

dollars. Later-stage raisings continue to attract majority of software VC

VC

AL

LO

CA

TE

D T

O S

OF

TW

AR

E

SO

FT

WA

RE V

C I

NV

ES

TIN

G

46% of all VC dollars

invested in Q3 went to

software companies


($MM)

$195 $184 $336 $287 $338 $464 $502

$359 $347 $445

$510 $563 $524 $468 $627 $851

$1,270 $966 $1,208 $1,186 $1,350

$1,735 $1,827 $1,399

$2,124 $1,509 $1,684 $1,786 $1,819

$2,939

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3

2010 2011 2012 2013

First Sequence Financing ($MM) All Other Stages ($MM)

18

Corporate VCs Post Record Quarter of Investing

Corporate VCs invested $909M in Q2 2013, the highest level in over 4 years and a 23%

increase over the high seen in Q2 2011

QUARTERLY CORPORATE VC INVESTING ACTIVITY


($MM)

$223

$359

$296

$463

$371

$665

$441 $437 $461

$742

$554 $533

$514

$572

$686

$494 $473

$909

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2009 2010 2011 2012 2013

19

Falvey Partners Snapshot

FOCUS SELECT, RELEVANT TRANSACTION EXPERIENCE

December 2011

Has acquired

July 2012

Has been

acquired by

September 2011

Series D

Convertible

Preferred Stock

led by

September 2012

Has been

acquired by

A portfolio company of

July 2011

Has been acquired

by a portfolio

company of

April 2011

Has been

acquired by

July 2011

Has been

acquired by

February 2011

Growth equity

investment from

November 2010

Has received an

investment from

A portfolio company of

October 2010

PGI Notify and Send

platforms acquired by

August 2010

Series C

Convertible

Preferred Stock

Led by

SERVICES

Sell-side or buy-side M&A

Growth capital raising

Board and corporate advisory

SECTOR

Software / SaaS

Tech-enabled business services

IT services

Internet / digital media

COMPANY TYPE

$50M - $250M in enterprise value

Growing, with established scale

Profitable or near-term path to profitability

We are an entrepreneurial investment banking firm focused exclusively on capital

raising and M&A for leading software companies

Founded in 2012 by Peter Falvey and key members of the Morgan Keegan / Revolution Partners team

Falvey Partners professionals have closed dozens of software transactions representing billions of

dollars in transaction value

August 2004

Has been

recapitalized by

Sell-Side Advisor

Ecommerce

Software Provider

Project

Bay

Sell-Side Advisor

Enterprise

Mobility Software

Provider

Project

Swift

Placement Agent

Web Infrastructure

Software Provider

Project

Anthem

Sell-Side Advisor

Project

Port

Content

Management

Software Provider

Placement Agent

Project

Leaf

Cloud Accounting

Software Provider

December 2012

Retail

Marketing

Software Strategic Minority

Investment

technology private capital market update q3 2013

Technology

b ipo17

market intelligence

total exit value data

leveraged loan market

closed transactions

vintagecumulative overhang

bycumulative overhang

nearrecord overhang