1
Q1 2020
Sector
Update
Software
Important disclosures appear at the back of this report
GP Bullhound LLP is authorized and regulated by the Financial Conduct Authority
GP Bullhound Inc is a member of FINRA
2
GP Bullhound is a leading technology advisory and investment firm, providing transaction advice and
capital to category leaders.
Our quarterly SaaS market report provides quantitative insights into public and private market valuations across the transaction spectrum and
qualitative insights into company business models, technology and trends. We feature many of the leading SaaS companies and CEOs across
interesting sub-sectors.
The big topic for this report obviously is COVID-19 and how it impacts daily lives, the economy, businesses and how people work. Generally we
expect most B2B software companies to be pretty resilient throughout these turbulent and extraordinary times as they are core to how
businesses operate and benefit from fundamental long-term trends. Some may even see an acceleration in business and a fundamental shift
in adoption (e.g. digital workforce, collaboration and video conferencing), while a few vertically focused software vendors (e.g. hospitality
and retail) are likely to suffer at least in the short-term.
Based in our San Francisco office, Jonathan Cantwell is the head of our software practice with over 15 years of experience and has completed
over 50 transactions with public and private tech companies globally. With 15 transactions in the past 12 months, we recently raised $1B+ for
our clients in new capital and exit proceeds. Several of our recent software advisory transactions and investments are showcased below:
Software perspectives
EXECUTIVE SUMMARY
Partnerize
INVESTMENT BY
Accel - KKR
EcoVadis
INVESTMENT BY
CVC
Edited
INVESTMENT BY
Wavecrest Growth &
Beringea
Unomaly
ACQUIRED BY
Logic Monitor
Assetic
ACQUIRED BY
Dude Solutions
3
Key sector takeaways
Recent software transaction trends
1
Contents
2
Public market SaaS analysis
SaaS CEO commentary
Key SaaS metrics
Appendix A: GP Bullhound SaaS index
3
4
5
6
Appendix B: Software public comparables by category
7
Appendix C: GP Bullhound credentials & team
8
4
Section 1
Key sector takeaways
5
GP Bullhound’s views on current trends in software
KEY TRENDS
COVID-19 impact on the software industry
1
2
3
4
Rise in demand and adoption of the pay-per-use model (PPU)
AI/RPA acquisition and investment spree expected to accelerate
5
6
Software companies riding the wave of growth from Microsoft Azure and 365
HR technology is improving employee engagement and development with AR/VR/XR
RPA opens the door for hyper-automation
6
GP Bullhound’s views on current trends in software
KEY TRENDS
1
COVID-19 impact on the software industry
 High recurring revenue business models will survive well in the long-term:
– CEOs will focus on what really matters to customers and double down efforts.
– Engagement and utilization will be measured to determine the risk and combat churn.
– Customer success teams will be concentrated on upcoming renewals and then expanding the current customer base.
 Sales forces should re-check all customer agreements to determine out-clauses and renewal dates. As a rapid focus on
operating costs begins, low-value or low-usage products can expect high churn in the next three months:
– Spend and usage solutions from Cleanshelf, Coupa, ServiceNow, etc. will be valuable to the operations of enterprise customers.
 A shift to ‘profitable growth’ will occur; important in order to function well without burning capital.
 Vertical software companies focused on stable and growing industries will do well (government and healthcare) versus software
sold into currently challenged industries (hospitality and retail).
 Remote work and collaboration platforms have seen a well-deserved increase in demand and stock prices in the last few weeks –
DocuSign, Microsoft Teams, Slack, and Zoom – demand is likely to come down post the COVID-19 crisis, but still remain high as a
shift to a mobile economy, less transient way of life will stick for years to come.
– Security and back-end infrastructure will be critical to maintain quality productivity.
 As was the case in 2008-2009, the large cloud players will continue to hire and be dominate given their scale – Amazon, Google,
Microsoft, Salesforce, Slack, and Zoom – flight to quality benefits tech leaders.
 We have seen a long-term shift towards companies enabling greater workforce flexibility and leveraging tech to drive efficiencies
with progress differing hugely by industry. However, companies’ sudden need to embrace remote working and technology due
to COVID-19 will have a permanent impact on the workforce and their tech and software set-up and accelerate this shift across
all industries. Post-COVID-19, workforces across sectors will be much more reliant on software and continue to leverage and
embrace newly found efficiencies and flexibility.
7
GP Bullhound’s views on current trends in software
KEY TRENDS
(1) The Wall Street Journal, Enterprise-Software M&A Deals Show Slowdown, February 5, 2020
2
 Even when it comes to pricing and billing, SaaS companies can no longer afford to remain static with limited pricing options and
service tiers.
 Real, usage-based pricing is a form of billing where customers are charged based on the usage of software or service. This allows
more flexibility and has become a key differentiating factor (or a straight necessity) in competitive markets as they develop.
 Often a subscription that uses usage-based billing has a base plan with a set monthly fee and additional charges based on each
customer’s usage. Some companies also offer plans with no monthly fee, only flexible billing based on usage.
 Companies that have mastered this model: AWS, Digital Ocean, Mailgun, MessageBird, and WordStream.
Rise in demand and adoption of the pay-per-use model (PPU)
3
 Artificial Intelligence (AI) has become a component of enterprise software suites driving upward bounds of innovation in
technology. The acquisition of AI talent and technology are expected to accelerate and become one of the key drivers for
software deal making.
 Spending on AI is expected to reach $36 billion in 2020, up 44% from 2018, and grow to $79 billion by 20221.
 Acquirers’ focus has shifted from more exploratory AI acquisitions to looking for AI technology and acquisitions that they can
leverage for their existing products and platforms, and that can deliver value-add to customers in the short- and medium-term.
 Access to and quickly building scale in scarce AI talent is another focus for the large software consolidators as they seek to drive
innovation.
 Companies that have mastered this model: Google, LinkedIn, Microsoft, and Salesforce.
AI/RPA acquisition and investment spree expected to accelerate
8
GP Bullhound’s views on current trends in software
KEY TRENDS
4
HR technology is improving employee engagement and development with AR/VR/XR
 Companies are using AR/VR to more efficiently train employees, offer new ways to engage candidates, onboard talent and
create a more collaborative & immersive team environment.
 AR/VR/XR is programmable to cater to the different learning curves of every employee and can offer personalized professional
development plans for each and every employee.
 Existing training modules can all be digitalized, immersing employees into real-life situations.
 Companies are rapidly rolling out products and processes to ensure engagement during remote work.
5
RPA opens the door for hyper-automation
 RPA was the stepping-stone to fully automating all repetitive processes within an enterprise. Going into 2020, businesses will look to
combine additional software to expand the scope of tasks that can be completed using RPA.
 Hyper-automation is the product of combining other technologies and software, allowing enterprises to focus on a wider
spectrum of business functions that usually require varying degrees of human intervention.
 This usually entails combining RPA with process mining, analytics, UX/CX, ingestion engine and machine learning.
 RPA has moved out of tech-focused companies and into new verticals including healthcare and government.
 Companies that have mastered this model: Automation Anywhere, Blue Prism, Olive, and UIPath.
9
GP Bullhound’s views on current trends in software
KEY TRENDS
1. Microsoft, Statista
2. Rightscale 2019 State of the Cloud Report from Flexera
6
Software companies riding the wave of growth from Microsoft Azure and 365
 Cloud infrastructure providers have experienced rapid growth over the past few years as more companies embrace cloud
technology, initially with AWS leading the pack. Microsoft has heavily invested in Azure, which has experienced substantial growth
(2016-2019 Commercial Cloud Revenue CAGR of 54%1) and has grown its public cloud adoption from 43% in 2017 to 60% in 2019
(AWS has grown adoption from 59% to 67% in the same time period)2.
 Given the level of competition, cloud providers have focused on functionality and applications to deliver a more value-added
proposition and avoid being commoditized. Microsoft has been particularly focused on its cloud platform strategy offering
increased functionality and applications. Microsoft benefits from a comprehensive enterprise product offering, which is tightly
integrated in addition to its cloud services, driving strong incentives for businesses to use its products.
 Software companies with strong Microsoft integration flexibility and products built on top of the Microsoft stack are benefiting from
strong underlying growth from Microsoft Azure and 365, and are seeing less friction in the sales cycle. The ability to interface with
existing enterprise systems helps software companies deliver a single source of truth for customers. Over the coming months, we
expect more software companies to double down on their Microsoft partnership strategy, leading to more M&A around the
Microsoft ecosystem.
10
Section 2
Recent software transaction trends
11
Announce
Date
Buyer
Target
Target Description
Value
($m)
Implied
EV/LTM Rev
Mar-20
Software-defined wide-area
networking provider
420
‒
Mar-20
Strategic asset management
software
‒
‒
Mar-20
Financial wellness benefit
application
‒
‒
Mar-20
Provider of cloud-based
human capital management
‒
‒
Mar-20
Provider of intelligent data
management software
5,000
5.0x
Feb-20
Cloud-based software
intended to deliver industry-
specific customer
experiences
1,330
13.3x
Feb-20
Cloud-based talent
management applications
1,394
‒
Feb-20
SaaS based people
management software
22,000
‒
Feb-20
ERP software for industry-
specific business
13,000
‒
Jan-20
Work communication tool
with shareable videos
‒
‒
Jan-20
Algorithmic monitoring
platform
‒
‒
Source: Capital IQ, Pitchbook
Notable software M&A deals & private financings
AVERAGE VALUATION MULTIPLES FOR M&A TRANSACTIONS ARE UP QUARTER OVER QUARTER
2020 Q1 Mean
9.1x
Announce
Date
Lead Investor
Issuer
Issuer Description
Capital
Raised ($m)
Mar-20
Automated chatbot-based live
support platform
44
Mar-20
Hospitality management
software for the hotel industry
82
Mar-20
All-in-one spend management
platform
30
Mar-20
Development tool intended to
design and host websites
53
Mar-20
Mobile field workforce
management platform
40
Feb-20
Enterprise application platform
for enterprise insurance
51
Feb-20
Restaurant management
platform and cloud-based POS
400
Jan-20
Intelligence-driven marketing
and sales automation services
100
Jan-20
Developer of a personalized
mobile messaging platform
70
Jan-20
Human resource management
and recruitment platform
75
Jan-20
Partner automation platform
for business partnerships
50
Jan-20
Sustainability rating platform for
global supply chains
200
Selected M&A Transactions
Selected Private Financings
2019 Q4 Mean
6.5x
12
Source: Pitchbook as of March 31, 2020
Note: Data includes all ‘SaaS’ M&A and private placement deals as defined by Pitchbook regardless of geography or
transaction size
Global software transaction trends
M&A AND PRIVATE PLACEMENT ACTIVITY REMAINS STRONG QUARTER OVER QUARTER
Recovery in the total volume and value of buyout and M&A deals
Total number of private placement transactions remain steady
The US and Europe continue to dominate M&A deal volume
Deal volume in the U.S, Canada, & Europe outpaced other regions
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
U.S. & Canada
Europe
Asia
Other
0
500
1.000
1.500
2.000
2.500
3.000
3.500
4.000
$0M
$5B
$10B
$15B
$20B
$25B
$30B
$35B
$40B
Capital invested ($Bn)
Volume
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
U.S. & Canada
Europe
Asia
Other
0
100
200
300
400
500
600
$0M
$20B
$40B
$60B
$80B
$100B
$120B
M&A
Buyout
M&A deals
Buyout deals
13
Software IPO landscape
Source: Company SEC filings from Edgar, Capital IQ as of March 31, 2020
Filed in Q1 2020
 Description (NASDAQ:ZI):
Provider of a leading B2B sales
intelligence platform
 Listing Date: TBD
 Offering Amount: $500m
proposed
 Offering Price/Share: TBD
 LTM 12/31/19 Revenue:
$293.3m
 Selected Metrics:
– Net dollar retention 109%
– 14,000+ customers
– >50m contact record
events daily
– 580+ customers >$100k
ARR
 Description (NYSE:PCOR):
A leading cloud-based
construction-management
software
 Listing Date: TBD
 Offering Amount: $100m
proposed
 Offering Price/Share: TBD
 LTM 12/31/19 Revenue:
$289.2m
 Selected Metrics:
– Net dollar retention 117%
– 1.3m+ users
– 8,506 total customers
– 650+ customers >$100k ARR
Comparing filed & listed IPOs (YoY)
Filings to look for in 2020
3
1
2
Q1 2019
Q1 2020
Filed
Listed
Company
Overview
Provides teams collaboration and workflow
management software
Brokerage platform that offers individuals
commission-free trading
Offers a cloud-based data storage and
analytics service
14
Section 3
Public market SaaS analysis
15
1x
2x
3x
4x
5x
6x
7x
8x
9x
10x
11x
12x
13x
14x
mar-15
mar-16
mar-17
mar-18
mar-19
mar-20
GPB SaaS Index - EV / LTM Revenues
GPB SaaS Index - EV/ NTM Revenues
Source: Capital IQ as of March 31, 2020
Note: GP Bullhound SaaS Index constituents can be found in Appendix A
(1) YTD GPB SaaS Index EV / LTM Revenues growth rate
GP Bullhound SaaS index valuations
REVENUE MULTIPLE TRENDS – PAST 5 YEARS
Mean: 8.9x
Mean: 7.3x
Current SaaS valuations remain strong against the 5-year mean
Mar ‘20: Multiples are
down 10%(1) YTD due to
the effects of COVID-19
As of March 31, the SaaS Index is trading at 9.9x trailing 12-month revenues, which is 11% greater than the 5-year average
As of March 31, the SaaS Index is trading at 8.4x next 12-month revenues, which is 15% greater than the 5-year average
Feb ’16: Overall market correction, global economic
weakness made its way into the US causing SaaS
companies to adjust their guidance
Dec ‘18: Trade war with
China leads to the sell-off
of SaaS company stocks
16
1x
2x
3x
4x
5x
6x
7x
8x
9x
10x
11x
12x
13x
14x
mar-07
mar-08
mar-09
mar-10
mar-11
mar-12
mar-13
mar-14
mar-15
mar-16
mar-17
mar-18
mar-19
mar-20
GPB SaaS Index - EV / LTM Revenues
GPB SaaS Index - EV/ NTM Revenues
Source: Capital IQ as of March 31, 2020
Note: GP Bullhound SaaS Index constituents can be found in Appendix A
*Not all GP Bullhound SaaS Index constituents were publicly traded in 2008
GP Bullhound SaaS index valuations
REVENUE MULTIPLE TRENDS – PAST 13 YEARS
Mean: 8.0x
Mean: 6.5x
Current SaaS valuations remain strong against the 13-year mean
Cloud stocks continue to be valued highly relative to the overall market and other sectors
in tech; this is primarily due to strong end-market demand for software, mission critical
business solutions, recurring revenue models and greenfield future opportunities for SaaS
1.9x
9.9x
As of March 31, the SaaS Index is trading at 9.9x trailing 12-month revenues, which is 24% greater than the 13-year average
As of March 31, the SaaS Index is trading at 8.4x next 12-month revenues, which is 29% greater than the 13-year average
17
Investors are increasingly focused on KPIs outside of revenue
as they evaluate business models
Source: CapitalIQ, SEC Filings
(1) CY20E / CY19A (2) (S&M LTM Mar. 2020 / ((LTM Mar. 2020 Rev. – LTM Mar. 2019 Rev.) * GM%)) / 12 (3) LTM Mar. 20
Operating Cash Flow / LTM Mar. 2020 Revenue (4) As stated in company filings & earnings releases
PUBLIC SAAS METRIC BENCHMARKING
Revenue YoY growth (1)
Payback period (2)
Free cash flow margin (3)
Net dollar retention (4)
In months
132%
122%
120%
119%
117%
116%
115%
104%
104%
100%
80%
90%
100%
110%
120%
130%
140%
Slack
Pagerduty
Pluralsight
Okta
Docusign
Zscaler
Appian
Zuora
Box
Hubspot
44%
36%
32% 32% 30% 29% 29%
26% 25% 23% 23% 22% 22%
16%
14% 13%
10% 10% 9%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
82,4
75,1
61,8
54,1
40,1 38,8
33,7 31,5 30,6
26,7 25,3
20,1 18,8 18,8 18,6 17,6 16,5 14,4 12,6
0
10
20
30
40
50
60
70
80
90
41%
32% 30%
25% 24%
18% 18% 16%
12% 9% 6%
1%
0% -1% -2% -3% -4% -4%
-46%
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
18
Source: Capital IQ as of March 31, 2020
Note: GP Bullhound SaaS Index constituents can be found in Appendix A
GP Bullhound SaaS index performance
INDEX VALUE
60%
70%
80%
90%
100%
110%
120%
Jan-20
Feb-20
Mar-20
Index ValueGPB SaaS Index - Index Value
NASDAQ Composite
S&P 500
70%
80%
90%
100%
110%
120%
Sep-19
Oct-19
Nov-19
Dec-19
Jan-20
Feb-20
Mar-20
Index ValueGPB SaaS Index - Index Value
NASDAQ Composite
S&P 500
70%
80%
90%
100%
110%
120%
130%
Apr-19
Jul-19
Oct-19
Jan-20
Index ValueGPB SaaS Index - Index Value
NASDAQ Composite
S&P 500
L1M
L3M
L6M
L12M
Mar-20
Mar-20
65%
75%
85%
95%
105%
Mar-20
Mar-20
Mar-20
Mar-20
Mar-20
Index ValueGPB SaaS Index - Index Value
NASDAQ Composite
S&P 500
Mar-20
Mar-20
19
0%
100%
200%
300%
400%
500%
600%
700%
800%
0%
100%
200%
300%
400%
500%
600%
700%
800%
Source: Capital IQ
Note: existing cash balances allow companies to spend over 100% of operating cash flow
(1) As of Q1 2020 (2) Dollar amounts represent total cash use during the LTM period
Tech giants – Show me the money
R&D
Debt paydown
Capex
Dividends
Share buybacks
Acquisitions
$54,897
$1,040
$826
$9,725
$3,239
$125,914
$55,403
$67,160
$1,595
$9,256
$58,948
$167
LTM (1) % of operating cash flow $m (2)
LTM – Q1 2019 % of operating cash flow $m (2)
$26,724
$1,137
$416
$5,760
$1,058
$93,612
$58,711
$63,502
$50,762
$908
$142
$2,541
 Substantial uses of cash for acquisitions through Q1 2020.
― Google completed four deals so far this year, including the $2.6 billion acquisition of Looker
― Salesforce closed another large transaction with the acquisition of Vlocity for $1.3 billion in an all-cash deal
― Microsoft announced the acquisition of Affirmed Networks for a speculated $1.35 billion
― Workday’s acquisition of Scout RFP for $540 million
 We expect companies will look to hold onto their cash until current market conditions show upside going into Q2.
20
Section 4
SaaS CEO commentary
21
Software company CEO profile
MPP Global delivers eSuite, the world’s smartest subscriber management & billing platform
providing blue-chips in the Media sector with the freedom to deploy flexible business models
that drive recurring revenue streams. eSuite powers next generation lifecycle management
that enables the acquisition, monetization and optimization of customers. With offices
throughout the Americas, Europe and Asia Pacific, MPP Global has an impressive track record
of maximizing customer lifetime value. Clients include Sky, McClatchy, L’Équipe, Bonnier,
Specsavers, Daily Mail, NBC Universal, ProSiebenSat.1 and Mainichi.
“Why would any company want to buy hardware, license
software, build data centers, configure firewalls and pay
engineers to maintain it? And that is even before the company-
specific information systems have been architected and
integrated. MPP Global supports all the obvious reasons why
SaaS is better (time, cost, convenience) with enterprise-grade
subscriber management capability, but goes further with
providing maximum levels of data security relating to both
payment information (e.g. credit card numbers) and personal
data. We allay fears relating to data loss, fines and reputational
harm."
Paul Johnson
CEO
22
Software company CEO profile
Founded by a team of engineers at Stanford University, Onfleet is a San Francisco-based B2B
provider of last-mile delivery management software with a mission to make last mile delivery
efficient and delightful. Onfleet powers millions of deliveries every month for thousands of
businesses across 90+ countries. Its customer base ranges from food & beverage delivery
services to laundry & dry cleaning, prescription pharmaceutical, and flower & retail delivery
businesses. Onfleet's product includes a powerful web-based dispatch dashboard for routing,
tracking, dispatching, and analytics, intuitive iOS and Android apps for drivers, automated
customer notifications and real-time driver tracking, and a robust RESTful API.
“Most of our clients, particularly those in the grocery, restaurant,
pharmacy, and cannabis industries, have seen significantly
increased demand for their services in the past few weeks. We
are busy onboarding new clients as well as building contactless
delivery functionality, such as contactless signatures, to better
serve the needs of delivery services during this crisis. We also
launched a driver job board to connect those looking for work
with those businesses struggling to keep up with demand. The
COVID-19 pandemic will be a major catalyst in retail's transition to
local delivery, and we at Onfleet have an important role to play
in supporting these businesses."
Khaled Naim
Co-Founder & CEO
23
Software company CEO profile
Founded by two serial entrepreneurs Dan Lee and Charlie Ponsonby, Plandek provides a
complete set of end-to-end metrics and predictive analytics, to improve the effectiveness of
software delivery. It works by mining data from toolsets used by delivery teams (such as Jira,
Git, CI/CD tools and Slack), to provide actionable insight to optimize software delivery
forecasting, risk management and process improvement. Plandek is a leader globally in the
field and its analytics tools are used by clients in the US, Canada and Europe to transform their
software delivery continuous improvement and risk management.
“As you deliver software at scale, the complexity of delivering it
increases exponentially – specifically in the continuous agile
delivery environment. Due to global events around COVID-19, we
are seeing an increasing uncertainty on delivery expectations
and great pressure on cost which makes governance, risk
management, and analytics of software delivery even more
important than it has ever been."
Charlie Ponsonby
Co-Founder & Co-CEO
24
Section 5
Key SaaS metrics
25
Key SaaS metrics
DEFINITIONS & CALCULATIONS
Metric
Definition
Calculation
Normalized measurement of recurring revenue, most frequently
measured with a constant value in each month of the subscription
period
MRR
All S&M expenses for new customers. Sometimes excludes
personnel management S&M costs
CAC =