DISCUSSION
MATERIALS
CONFIDENTIAL
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.
Table of contents
I.
Arrowroot M&A Process
3
II.
Software M&A Trends & Activity
13
III. Arrowroot Team Bios
17
ARROWROOT M&A PROCESS
Top reasons for selling and buying
60%
To provide liquidity to owners
Maximize value / take advantage of market values
Alleviate owner fatigue
70%
Increase revenues
Improve operational efficiencies
Better meet market expectations
45%
To provide liquidity to owners
Maximize value / take advantage of market value
Take advantage of current capital gains rates
44%
60%
Increase revenues
Put cash to work
Expand geographic reach within U.S.
38%
36%
35%
28%
41%
33%
33%
Lower Mid-Market ($5mm -<$25mm)Upper Mid-Market ($25mm -<$2bn)Top 3 Reasons to Sell
Top 3 Reasons to Buy
Source: Citizens
Why now is the time for SaaS companies to sell
Company ARR
< $10M
$10-$20M
Rationale for a Sale
Current SaaS market trends and observations indicate that now is an opportune time to
sell sub-$20M ARR SaaS companies
• Difficulty in raising growth equity without strong history of demonstrable traction / execution
• Investors question product-market fit for “lifestyle” growth vs. accelerated growth companies
• Companies with extended history (5+ years) judged harshly by growth investors
• Tired capital base
• Rapidly evolving technology creates risk of making certain SaaS solutions obsolete
• Companies increasingly forced to pivot quickly or forge partnerships in order to stay market relevant
• Uncertainty around how long elevated multiples will remain
• Increasingly crowded market putting pressure on growth
• Investors can afford to be choosier
• Companies outside of growth equity hubs ignored by hands-on and operational focused investors
Strongly impacted
Partially impacted
Sell-side process strategies
Arrowroot will help develop an optimal sale strategy by carefully assessing client-
specific and market factors
Preemptive
Targeted Solicitation
Controlled Auction
Public Auction
Description
• Screen and identify most
likely buyer
• High-level approach to
selected potential buyers
• Limited range of logical
potential buyers contacted
• Requires formal guidelines
(i.e. process letter)
• Public disclosure made
• Preliminary materials
distributed to wide range of
potential buyers
# of Buyers
1
2-10
10-25
25+
Advantages
• Efforts focused on one
buyer
• Maximum confidentiality
• Sense of competition
enabled
• Avoids perception that
property is being “shopped”
• High degree of control over
process
• Creates strong sense of
competition
• Most likely to obtain highest
offer
• Finds “hidden” buyers
Disadvantages
• Unlikely to maximize value
• Tied to result of one
negotiation
• High Risk with low
probability of close
• Requires substantial top-
level management time
commitment
• May not maximize value
• Limited confidentiality
• Potential for disruption due
to rumors
• Highest risk of business
disruption
Considerations
• Have very clear sense of
most logical buyer
• High risk of damage from
business disruption
• Have limited group of
logical buyers
• Have key objectives of
confidentiality and limiting
any business disruption
• Seek good balance between
confidentiality and value
• Believe business is unlikely
to be damaged by public
process and focus on
maximizing shareholder
value
Strong access to relevant sponsor buyers
Arrowroot maintains strong relationships with financial sponsors actively acquiring
across the software sector
Platform Acquirors
Platform / Bolt-On Acquirors
Bolt-On Acquirors
DescriptionIllustrative Buyers• Seeking stand-alone investment
• Strategy more open ended, more focus on
developing strategic plan
• More flexibility in identifying avenues of
growth
• Complement existing investments
• Addresses a specific strategy or growth
avenue: geographic expansion, new
offerings, new customers, scalability, etc.
• Focus on synergy opportunities
Lower MM PE
MM PE / VC
(Series B+)
Mega PE / VC
(Series C+)
Broad access to strategic buyers
Arrowroot runs parallel outreach programs with sponsors and strategic buyers to
identify and maximize strategic premium for clients
Illustrative Strategic Relationships
How Arrowroot adds value
• Thorough internal diligence on
company
• Efficient identification of buyers
• Create compelling marketing
materials that clearly articulate the
value prop and growth roadmap
• Optimize transaction structure
• Evaluate strategic initiatives
• Market sizing analysis and industry
research
• Development of high-confidence
financial projections
We spend time learning about your company and growth strategy in order to effectively
communicate the value proposition to buyers
Arrowroot’s value-add approach helps position clients for premium pricing
•
IP, expertise and development
Future enhancements, developments in progress
• Scalability
Scalable offering to propel high potential growth
• Scarcity Premium
Attractive standalone asset? Competitive advantage?
• Based on financial information of the business to
date and forecasts
• EBITDA growth
• Organic revenue generation and prospects
• Obligations with customers/suppliers/partners
• Lack of unique approach
• Difficulty of integration
• Lack of vendor alignment
• Lack of forecast visibility
Arrowroot’s Core Competencies
Positioning Value to Buyers
Strategic PremiumBase ValuationValue Destroying Factors
Process roles and responsibilities
Market Size
Market Opportunity
Responsibility
Arrowroot's Responsibilities
AA
C
LC
Summary
AA Value-Add
Financial Model
• Help develop and stress test projections and work with management to identify
and communicate appropriate add-backs and other adjustments
• Work with the management team to develop current year budget and long-term
strategic forecasts supported by hard data
• Significant experience
with similar companies
Teaser
• Create executive level teaser to introduce opportunity to market
• Targeted data points
investors look for
Confidentiality
Agreement (“CA”)
• Create and negotiate CA’s with prospective buyers
• Manage CA distribution
and execution
Confidential
Information
Memorandum (“CIM”)
• Prepare CIM that effectively communicates the investment thesis, growth
roadmap and strategic opportunity to buyers
• Summary level presentation of the Company’s operations and financials
• Redacted document can be used with any sensitive buyers
• Already understand
value drivers and able
to mitigate buyer
concerns
Management
Presentations
•
Intensely rehearse with management and prepare them for each counterparty’s
likely questions
• Coordinate management presentations and work with potential buyers to
formulate final-round proposals
• Process experience
makes AA an excellent
coach
Data Room /
Diligence
• Facilitate the due diligence process along with the management team and legal
counsel
• Access to data room provided only to buyers that attend a management
presentation and continue with due diligence
• Familiar with key areas
of buyer focus
• Conduit for data flow to
buyers
Purchase Agreement
• Provide impactful input on market terms for definitive documentation
• Negotiate with selected buyer upon signing a letter of intent
• Lead business negotiations until deal is signed and closed
• AA knows what is
representative of
current market
conditions
Lead responsibility
Heavy involvement
Moderate involvement
Minimal involvement
AA = Arrowroot Advisors
C = Client
LC = Legal Counsel
Illustrative process timeline
Prepare
Marketing
Materials
Whisper
Campaign
Begin Buyer
Outreach
Management
Meetings
Solicit Initial
Indications of
Interest
Open Data
Room
Additional
Management
Meetings (If
Needed)
Submit Final
Bids
Sign Purchase
Agreement
Holidays
•
Speed of process depends on company’s preparedness and commitment
•
Arrowroot’s aim would be to get investors excited to accelerate a process and pre-empt an auction; if this is the case,
management should be prepared for Management Presentations within 3 weeks
•
Arrowroot would initiate a “whisper campaign” with highly qualified financial sponsors and strategics in advance of
process launch
• Marketing materials provided upon execution of NDA, with Arrowroot fielding follow-up calls to address diligence
questions
• Management presentations would be set up for a limited number of interested parties
•
Parties submitted qualified bids would be granted access to the data room
•
Follow-up management presentations as necessary
•
Arrowroot to field follow up calls on outstanding diligence items ahead of final bid deadline
•
Selection of winning party to move forward with signing
S M T W T F S
S M T W T F S
S M T W T F S
S M T W T F S
1 2 3 4 5 6 7
1 2 3 4
1 2
1 2 3 4 5 6
8 9 10 11 12 13 14
5 6 7 8 9 10 11
3 4 5 6 7 8 9
7 8 9 10 11 12 13
15 16 17 18 19 20 21
12 13 14 15 26 17 18
10 11 12 13 14 15 26
14 15 16 17 18 19 20
22 23 24 25 26 27 28
19 20 21 22 23 24 25
17 18 19 20 21 22 23
21 22 23 24 25 26 27
29 30 31
26 27 28 29 30
24 25 26 27 28 29 30
28 29 30 31
31
December 2017
October 2017
November 2017
January 2018
Client case studies
Uni + Company A + Company B = NewCo
Potential Equity Allocations
• Pro rata equity roll + financial partner
• Potential partial liquidity event for management/cap table
• Based: Phoenix
• Revenue: $2M
• YoY growth: 20%
• Based: Southeast
• ARR: $5M
• YoY growth: 5%
• Based: Midwest
• ARR: $1M
• YoY growth: (5%)
Finance
Partner
• Software focused PE
• Capital for liquidity & growth
• Governance & dev support
Company B
Company A
Financial Partner
Co. A Rolled Equity
Co. B Rolled Equity
Uni
Roll-Up: Project Uni
PE-backed M&A
Dual Track w/ Strategic M&A
Project Stratus
Child Care SaaS
• Based: San Francisco
• Revenue: $1.5M
• YoY growth: 100%
PE
Sponsor
Portfolio
Company
• Revenue: $60M
• Seeking cloud-based
offering as customers
migrate towards SaaS
+
• Targeted introduction that led to an LOI
• Client opted to re-engage following execution of key customer contract to support
increased valuation
Project Estate
Facility Mgmt Software
• Based: Hong Kong
• MRR: $300K
• Prior Funding: $10M
• Arrowroot planning to take client to market for U.S. investment ($5M)
• Early indications of strategic interest given client’s strong positioning in rapidly
growing sector
• Arrowroot to structure a dual capital raise / strategic M&A process
Strategics
U.S.
Investors
Project Uni
EdTech Software
SOFTWARE M&A TRENDS & ACTIVITY
Update on SaaS deal activity
Deal flow in the SaaS and Cloud industries has increased throughout
the first half of 2017; however, valuations have remained steady.
M&A activity continues to present an attractive alternative as demand
for new technologies increases, especially in sectors of cyber-security
and artificial intelligence.
Key trends in SaaS & Cloud:
 Private equity firms increase spending up 7% from 2H2016 and
comprise ~50% of the industry's top ten highest valued deals
 High demand for security-related data analytics companies as
concern and complexity of cyber threats increase
 Digital workplaces prioritize demand for collaboration tools
SaaS investment volume declines while deal sizes increase
2,428
Total transaction volume since 1H2015
3.8x
Trailing 30-Month Median EV/Sales
14.5x
Trailing 30-Month Median EV/EBITDA
Number of active
acquirers during the
past 30 months
Number of acquirers
that made >1
acquisition
Median disclosed
transaction value
in past 30 months
1,765
361
$41M
Source: Capital IQ, press releases
U.S. private equity activity
Private Equity M&A
Software Assets Coming into Favor with PE
Market conditions favor greater PE involvement in tech as
buyers, facing stiff competition and expensive assets,
purchase software companies for two significant reasons:
1. The SaaS business model is attractive because revenues
are structured as recurring subscription agreements,
allowing PE firms to better forecast expected revenues
and manage risk following acquisitions.
2.
Software companies are not capital intensive and growth
strategies are not subject to capacity constraints, but
rather focused on revenue expansion.
71%
21%
8%
North America
Europe
Other Regions
Headquarters of SaaS & Cloud Targets
Most Active Software / Strategic Acquirers
from 2007 - 2017
107
107
95
82
80
47
44
42
40
39
29
28
27
26
52
19
41
31
43
9
4
6
29
40
3
2
69
12
Number of Deals
Deal Value (Billions of Dollars)
►
Strategic firms are targeting software investments to seize market share from
competitors.
► Microsoft and IBM have been the most acquisitive with 107 acquisitions, followed by
Oracle, Cisco, and Intel with 95, 82, and 80 acquisitions respectively.
Source: Shea & Company, Company websites
Selected YTD software M&A transactions
Date
Deal Type
Target
Buyer
Deal Size ($M)
EV/Revenue
LTM Revenue ($M)
8/1/2017
M&A
Viptela
Cisco
610
6.1x
100
7/31/2017
Buyout
Xactly
Vista Equity Partners
564
5.5x
95
7/19/2017
M&A
Sajan
Amplexor
25
0.8x
30
6/29/2017
Buyout
Idera
HGGC & TA Associates
1130
na
na
6/26/2017
M&A
Global Capacity
Global Telecom & Technology
163
0.8x
200
6/23/2017
Buyout
Synchronoss
Siris Capital Group
835
na
476
5/26/2017
M&A
Evolution HCM
Asure Software
55
3.9x
14
5/11/2017
M&A
MindMeld
Cisco
125
na
na
5/1/2017
Buyout
Jive
ESW Capital
462
1.7x
204
4/28/2017
Buyout
Tangoe
Marlin Equity Partners
243
na
na
4/25/2017
M&A
TeleSign
BICS
230
2.3x
100
4/8/2017
M&A
Moat
Oracle
850
na
na
3/22/2017
M&A
AppDynamics
Cisco
3700
na
211
3/4/2017
M&A
Veracode
CA Tech
614
na
na
2/17/2017
M&A
SimpliVity
HP Enterprise
650
na
na
2/10/2017
Buyout
ServicePower
Diversis Capital
17
na
na
1/27/2017
Buyout
Planview
Thoma Bravo
800
5.3x
150
1/23/2017
Buyout
Landesk
Clearlake Capital
1100
na
na
1/9/2017
M&A
Avention
Dun & Bradstreet
150
2.5x
60
Mean
649
3.2x
149
Median
564
2.5x
100
Source: Capital IQ, press releases
Arrowroot Overview
Arrowroot Advisors team bios
ROBERT SANTOS has over 15 years of financial experience working with institutions, companies and entrepreneurs. Robert also serves at the CEO & CCO
for Arrowroot Partners, a FINRA/SIPC member broker dealer. Robert is currently the founder of Vitreous Partners, LLC, a boutique wealth management firm
working with a wide range of international and domestic clients to provide customized and specialized investment and family office services. Robert is also the
portfolio manager for Vitreous Partners' fund of funds, Ladrillo, LLC, which invests in a diversified portfolio of alternative investments, including hedge funds,
private equity funds, and real estate. Previously, Robert was a Director for Salem Partners, a multi-family office and investment bank in Los Angeles where he
served on the investment committee. Prior to Salem Partners, Robert worked at JP Morgan Securities and Bear Stearns, servicing clients in the financial services
industry. Robert received his BA from the University of California at Los Angeles (UCLA).
KUNAL PATEL has over 10 years of professional experience, primarily in consulting and investment banking roles. Kunal has worked on a variety of client
advisory assignments, ranging from debt and equity capital raises, M&A, merger integration strategy and change management. At Arrowroot Advisors, Kunal
has responsibility over the deal execution process for capital raises and M&A mandates for emerging and middle market technology businesses. Prior to joining
Arrowroot, Kunal founded Sixthman Services Pty, a provider of data analytics and execution support services for small and mid-sized financial services
firms. Prior to Sixthman, Kunal was an Associate Director for UBS Investment Bank where he covered Industrial and Business Services clients. Kunal holds a
BBA from the University of Wisconsin – Madison and an MBA from Georgetown University.
TAYLOR DOUGHERTY is responsible for various parts of the deal process including sourcing new clients, advisory services throughout the capital raise
and M&A process, and deal execution. Taylor has extensive experience in multiple SaaS verticals including healthcare technology, advertising technology, GRC
technology, and clean technology. Prior to joining Arrowroot Advisors, Taylor worked in Geneva, Switzerland with the Human Rights Council at the United
Nations, where she advised diplomats on key areas of child healthcare including nutrition and safety in conflict. Taylor attended Pepperdine University in
Malibu, CA where she graduated magna cum laude in Economics, French and International Studies.
JOSH ALBERT has been a key-player in a number of deals in the software/technology space. He has worked on projects in capital raising, sell-side M&A,
and other advisory services. At Arrowroot Advisors, Josh's responsibilities range across the deal process, from sourcing, to execution, to closing. Previously,
Josh has gained experience in valuation services, buy-side advisory to private equity, and corporate finance. Josh graduated early earning his B.S. from the
University of Southern California.
JAMES POLLARD has acted as an adviser, financier, or principal investor in transactions totaling over $40 billion in value. Most recently, James was
Managing Director & Head of Investment Banking at Nomad Financial, where he focused on M&A and capital raising activities for high-growth companies.
Previously, James was a Vice President in the Entertainment Industries Group at J.P. Morgan, where he structured financings and provide advisory services
globally for media entertainment companies, such as Legendary Entertainment and DreamWorks Animation. Prior to J.P. Morgan, James was an investor at
Colony Capital, a private equity firm with approximately $58 billion in assets under management, where he was responsible for the identification, evaluation,
and consummation of new investments in the media and real estate sectors. James previously held investment banking positions in the Mergers & Acquisitions
and Generalist groups at Bear Stearns, J.P. Morgan, and Deutsche Bank. He graduated with honors from the Marshall School of Business at the University of
Southern California with a B.S. in Business Administration.
Our experience
Select Closed
Transactions
Recapitalization
Bridge Financing
Capital Raise
Sell-Side Advisory
Sell-Side Advisory
Online community offering
local information-sharing
services
Digital publishing SaaS
platform
Select Deals In
the Market
Sell-Side Advisory
Sell-Side Advisory /
Special Situation
Buy-Side Advisory
Sell-Side Advisory /
Capital Raise
Sell-Side Advisory
$5,000,000
Series B growth Equity
Investment by
4
Smart headphones with
intuitive software
Has Been Acquired by
$50,000,000
Sale of company
Has been acquired by
Programmatic marketing
platform for mobile
advertising
Comprehensive SaaS-based
solution for childcare
centers
Project Stratus
Dual-track sell side /
$4mm capital raise for
provider of governance,
risk and compliance SaaS
solution
Project Falcon
Business process
outsourcing company
initiating roll-up strategy
Project BPO
Sell-side / recap advisory
for cognitive computing
and data analytics SaaS
platform
Project Apollo
SaaS-based diagnostic
healthcare image viewing
platform
Project Panther
Relevant industry experience with growing momentum and traction…
Rob Santos, Managing Director
rob.santos@arrowrootadvisors.com
For more information, please contact:
Ph: 310.566.5865