1
Q2 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.
COVID continues to disrupt people’s lives across the world. Those able are still mostly working remotely, with some economies at the state and
national level re-opening. Cloud software has been an integral part of businesses being able to function throughout the crisis, and public
market valuations have reflected this renewed focus on digital, cloud native operations. Despite the tough macroeconomic conditions,
software M&A has remained strong particularly in the US, where there is consolidation happening in a new environment where burn is being
heavily scrutinized, and valuations have tightened. We expect M&A to remain strong through the rest of this year as PE firms build out platforms
with large amounts of dry powder, and strategics deploy large cash reserves to build out products.
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 16 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
INVESTMENT BY
Accel - KKR
INVESTMENT BY
CVC
INVESTMENT BY
Wavecrest Growth &
Beringea
ACQUIRED BY
Logic Monitor
ACQUIRED BY
Dude Solutions
Partnerize
EcoVadis
Edited
Unomaly
Assetic
Motif
ACQUIRED BY
Charles Schwab
(NYSE: SCHW)
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
IT security faces challenges with increased attacks due to the shift to work from home
1
2
3
4
Low-code development enters the limelight amidst COVID crunch for IT resources
Collaboration software becomes critical to business continuity strategies today
5
6
Growing need for API connections and shift to ‘API as a product’ mindset
Telehealth validation opens a huge opportunity for Healthcare SaaS providers
The rise of product-led sales, growth and lower CAC
6
GP Bullhound’s views on current trends in software
KEY TRENDS
1
IT security faces challenges with increased attacks due to the shift to work from home
▪ Criminals have looked to take advantage of the COVID crisis, with a multitude of opportunities for bad actors.
▪ Key areas of attack include ransomware take-overs of hospital systems, private network hacking, as well as phishing
attacks using teleconferencing software as the bait for humans to inadvertently download malware – Check Point
research uncovered that more than 1,700 Zoom-related domains were registered in the last few weeks alone.
▪ Many of the challenges that businesses face are not new, as distributed workforces have been growing for years, and the risks
associated have long been a top priority for security professionals.
▪ However, the scale of the challenge has increased by an order of magnitude, and services like VPNs are now attracting a
lot more scrutiny given their importance to business continuity and security. Physical network security is also drawing
attention, as connecting to unsafe networks is occasionally the only option for those working remotely.
▪ As we emerge out of the first phase of the pandemic, and into the ‘new normal’ of remote working and ongoing public health
crises, organizations will need to do a number of things to improve cybersecurity, most importantly to protect critical assets and
services, with the understanding that keeping the entire system of a mostly remote workforce safe is an extremely challenging
undertaking.
7
GP Bullhound’s views on current trends in software
KEY TRENDS
(1) CNBC, “Next frontier in Microsoft, Google, Amazon cloud battle is over a world without code”, April 2020
2
▪ The pandemic has brought with it an acceleration of low-code / no-code app development, perhaps most exemplified by New
York City’s action to develop a COVID-19 online portal in a matter of days using visual drag and drop tools provided by no-code
start-up Unqork.
▪
IT departments used to spend several years on a product with large teams to meet their application needs. Low code allows a
handful of people to build an application in a matter of months with minimal resources.
▪ Microsoft expects 500m apps to be built in the next five years, and 450m of those to be built with low-code / no-code.(1) There is a
massive need to democratize the access and creation of enterprise technology for those who do not come from computer
science backgrounds. Forrester predicts investments in the low-code market will reach $21.2bn by 2022, and we have already
seen this manifest in M&A with Google’s acquisition of AppSheet in January.
Low-code development enters the limelight amidst COVID crunch for IT resources
3
▪ While many businesses may have had remote work capability somewhere in their roadmap pre-pandemic, the new reality is that
businesses must rapidly adapt to a distributed workforce. However temporary coronavirus is, remote work and flexibility is here to
stay, and collaboration software that facilitates online communication, productivity, and video conferencing stands to benefit.
▪ Demand for video conferencing will ease somewhat as restrictions ease, due to the social/consumer nature of some of this usage.
Collaboration software, on the other hand, is more squarely B2B in nature and will form the backbone of future business operations
going forward.
▪ Products like Asana, Monday.com, Microsoft Teams, and Slack allow companies to be highly flexible and seamlessly operate with
the same workflows regardless of whether teams are onsite one week or distributed the next, while Salesforce’s Work.com is
providing businesses with software tools to reopen in a safe effective way during COVID.
Collaboration software becomes critical to business continuity strategies today
8
GP Bullhound’s views on current trends in software
KEY TRENDS
4
Telehealth validation opens up a huge opportunity for Healthcare SaaS providers
▪ Telehealth has been around for some time now, but cultural acceptance and regulatory red tape largely prevented it from going
mainstream before COVID. The US federal government has eased requirements and insurance companies have waved co-pays
for telehealth visits. The result has served as a proof point for the telehealth model of healthcare. Stanford Children’s Health, for
example, conducted 500 telehealth visits in one day compared to pre-COVID daily highs of 35 visits.
▪ These are positive dynamics for telehealth platform-as-a-service providers to meet the global need for remote assistance. For
instance, Kry is a telemedicine startup that became one of the most downloaded apps in Europe with 80% consultations growth
compared to the same period last year.
▪ Telehealth prevents the risk of spreading illness during clinical visits, cuts operating costs, and facilitates more efficient patient
care. We expect to see telehealth SaaS solutions integrated into mainstream healthcare activities going forward.
5
The rise of product-led sales, growth and lower CAC
▪ The cost for starting a SaaS company has trended toward all-time lows, creating a low barrier of entry and highly competitive
market, and putting a lot of upward pressure on Customer Acquisition Cost.
▪ A product-led go-to market model allows buyers to self-educate and experience the value of the product first-hand before
buying. We have entered an age where product experiences are an essential part of the buying process, and where freemium
products themselves can handle onboarding and upgrading with much lower touch from sales reps.
▪ This entire model hinges on a demonstrable and convincing value proposition in which the product sells itself, hence the term
product-led growth. A successful product-led company creates a competitive moat by investing more in its product
development and customer success than an expensive high-touch sales team.
9
GP Bullhound’s views on current trends in software
KEY TRENDS
6
Growing need for API connections and shift to ‘API as a product’ mindset
▪ Enterprise software subscription ecosystems have become larger and more complex, with robust APIs and seamless integration
becoming important factors for buyers as they look to pursue a platform strategy. APIs fuel the network effect of applications used
by customers and partners, and as companies strive for more efficient data utilization and management, SaaS providers who do
not invest in API integrations risk losing customers to competitors who do.
▪ The key benefits of investing in APIs include churn reduction, product stickiness, and faster time to market. Providing a seamless
integration experience to third-party platform apps such as CRMs, ERPs, and HRIS systems makes a SaaS product more valuable
than as a stand-alone offer.
▪
In fact, many companies are taking an ‘API as a product’ approach to their internal development and monetization
strategy by giving dedicated dev teams ownership over the API and offering the end-product as an upsell opportunity to
customers.
▪ Some early investors in API-first models include Checkr, Plaid, Stripe, and Twilio. They have seen the benefits of their investment in
accelerated growth and product adoption, as well as highly sought-after strategic acquisition deals. API integrations will become
more critical to SaaS business strategies as SaaS buyers deem them a requirement in choosing their stack going forward.
▪ API as a product M&A activity in 2020 has underlined this trend
▪ May-20 – Payescape acquired PayRun.io, developer of an open payroll API, for an undisclosed amount
▪ Apr-20 – SoFi acquired Galileo, provider of a financial services API and payments platform, for $1.2bn
▪ Jan-20 – Twilio acquired Teravoz, developer of APIs for voice communication for businesses and call centers, for an
undisclosed amount
▪ Jan-20 – Visa acquired Plaid, developer of financial services APIs, for $5.3bn
10
Section 2
Recent software transaction trends
11
Announce
Date
Buyer
Target
Target Description
Value
($m)
Implied
EV/LTM Rev
Jun-20
Cloud-based infrastructure-
as-a-service platform
450
‒
Jun-20
Cloud-based information
sharing platform
100
‒
May-20
Intelligent document
automation platform
715
6.5x
May-20
Developer of an animated
graphics interchange format
(GIF) based platform
400
‒
May-20
Cloud-based business
consultancy service provider
385
‒
May-20
Payment processing and
communications software
245
‒
May-20
Industrial cybersecurity
platform to reduce IoT and
ICS risk
165
4.9x
May-20
Resume analysis platform to
simplify recruitment process
‒
‒
Apr-20
Inter-operable conferencing
platform to make video
conferencing easy
400
4.0x
1
Apr-20
SaaS cloud automation
platform designed to simplify
the life cycle management
145
‒
Apr-20
Speech recognition
technology to turn voice
data into actionable insight
59
6.5x
2
Source: Capital IQ, Pitchbook
(1) Calculated using LTM Dec’19 ARR of $100m as a proxy
(2) Market Research
Notable software M&A deals & private financings
AVERAGE VALUATION MULTIPLES FOR M&A TRANSACTIONS ARE DOWN QUARTER OVER QUARTER
Q2 2020 Mean
5.5x
Announce
Date
Lead Investor
Issuer
Issuer Description
Capital
Raised ($m)
Jun-20
Ownership management and
compliance platform
210
Jun-20
Data fusion platform to integrate,
visualize, secure and analyze
information
500
Jun-20
Cyber threat defense platform to
detect and respond to previously
unidentified threats
100
Jun-20
Collaboration platform that offers API
development
150
May-20
Digital experience insights
optimization platform designed to
understand user interaction
189
May-20
SaaS operations management
platform to empower IT
75
May-20
Construction technology platform
that optimizes building development,
design and construction
200
Apr-20
Cloud-based project management
platform that helps manage
construction and real-estate projects
150
Apr-20
Enterprise-ready event streaming
platform to help organizations to
benefit from scalability and flexibility
250
Apr-20
Cloud-based cybersecurity platform
to prevent data breaches and
compliance violations from cyber risk
120
Apr-20
Continuous delivery automation
platform to automate testing and
provide continuous integration tools
100
Apr-20
Data privacy platform designed to
offer enterprise-wide privacy
protection
87
Selected M&A Transactions
Selected Private Financings
Q1 2020 Mean
9.1x
Digital
Interconnect
12
Source: Pitchbook as of June 30, 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 HAS REMAINED RELATIVELY STEADY THROUGH Q2
SaaS deal volumes down modestly in Q2, but still relatively active
Total number of private placement transactions are down slightly QoQ
European M&A bounces back after slower Q1
Deal volume in the U.S, Canada, & Europe outpaced other regions
0
100
200
300
400
500
600
$0M
$20B
$40B
$60B
$80B
$100B
$120B
M&A
Buyout
M&A deals
Buyout deals
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
13
Software IPO landscape
Source: Company SEC filings from Edgar, Capital IQ as of June 30, 2020
(1) As of Jul. 6th, 2020
(2) Premium per customer calculated as In force Premium / Number of current customers as of December 31, 2019
Listed & Filed – July 2020 YTD
Filings to look for in 2020
Company
Overview
Provides team collaboration and workflow
management software
Developer of an on-demand goods delivery
application
Developer of a data analytics platform
designed to integrate, visualize, secure and
analyze information
Provider of cloud-based data storage and
analytics service
z
▪ Description (NYSE: LMND): Full-stack insurance
company powered by AI bots offering
purchases, claim settling and premium
payments for home-owners and renters
▪
Founded: 2015
▪
Listing Date: Jul. 2nd, 2020
▪ Offering Amount: $319m raised
▪
Enterprise Value1: $4.7bn
▪ Offering Price/Share: $29.00
▪
LTM 12/31/19 Gross Revenue: $67.3m
▪
Selected Metrics:
– 75% year one customer retention rate
– 108% increase in net added customers
during the year
– 643k+ current customers
– $177 premium per customer2
z
▪ Description (NYSE: FOUR): End-to-end payments
and technology platform that offers payment
processing, business intelligence and analytics
▪
Founded: 1999
▪
Listing Date: Jun. 5th, 2020
▪ Offering Amount: $345m raised
▪
Enterprise Value1: $2.3bn
▪ Offering Price/Share: $23.00
▪
LTM 12/31/19 Gross Revenue: $731.4m
▪
Selected Metrics:
– 3.5b annual transactions
– 200k+ current customers
– $200b+ payment volume processed annually
– 7k+ software partners
z
▪ Description (NASDAQ: RXT): End-to-end multi-
cloud technology services company. They
design, build and operate cloud environments
across all major tech platforms
▪
Founded: 1998
▪
Listing Date: July 10th, 2020
▪ Offering Price/Share: N/A
▪
LTM 12/31/19 Gross Revenue: $2.4bn
▪
Selected Metrics:
– Recurring revenue: 95%
– Net Revenue Retention 2019: 98%
– 2019/18 Bookings Growth: 17%
– ARR: $2.4Bn
– Customers: 120,000
– No customer >2% of total revenue
14
Section 3
Public market SaaS analysis
15
1x
2x
3x
4x
5x
6x
7x
8x
9x
10x
11x
12x
13x
14x
Jun-15
Jun-16
Jun-17
Jun-18
Jun-19
Jun-20
GPB SaaS Index - EV / LTM Revenues
GPB SaaS Index - EV/ NTM Revenues
Source: Capital IQ as of June 30, 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: 9.0x
Mean: 7.5x
Current SaaS valuations remain strong against the 5-year mean
Jun 2020: Multiples are up 34%+(1)
YTD owing to cloud stocks
winning during COVID-19 as
workforces have gone remote
and companies have rapidly
adopted cloud-native strategies
As of June 30, the SaaS Index is trading at 14.9x trailing 12-month revenues, which is 65% greater than the 5-year average
As of June 30, the SaaS Index is trading at 13.0x next 12-month revenues, which is 73% greater than the 5-year average
Feb 2016: Overall market correction, global
economic weakness made its way into the US
causing SaaS companies to adjust their guidance
Dec 2018: Trade war with
China leads to the sell-off
of SaaS company stocks
16
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 Jun. 2019 / ((LTM Jun. 2020 Rev. – LTM Jun. 2019 Rev.) * GM%)) / 12; (3) LTM Jun. 20
Operating Cash Flow / LTM Jun. 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
38%
36% 35% 34%
33%
25% 24%
21%
20% 19%
17%
16%
14% 14% 14%
12%
10%
8% 7%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
74.9
63.3
57.2 57.1
42.3
36.0 34.1
30.8
27.8 25.6 24.5
21.8 21.1 20.8 20.7 19.6
17.1 15.6 15.0
0
10
20
30
40
50
60
70
80
40%
30% 29%
24% 23%
17% 16% 14% 12% 11% 11%
4% 3% 2% 1% 0%
-3% -4%
-37%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
132%
121%
121%
120%
119%
119%
115%
107%
103%
100%
80%
90%
100%
110%
120%
130%
140%
Slack
Pagerduty
Okta
Pluralsight
Docusign
Zscaler
Appian
Box
Zuora
Hubspot
17
Source: Capital IQ as of June 30, 2020
Note: GP Bullhound SaaS Index constituents can be found in Appendix A
GP Bullhound SaaS index performance
INDEX VALUE
90%
100%
110%
120%
Apr-20
May-20
Jun-20
Index ValueGPB SaaS Index - Index Value
S&P 500
NASDAQ Composite
60%
80%
100%
120%
140%
160%
Jan-20
Feb-20
Mar-20
Apr-20
May-20
Jun-20
Index ValueGPB SaaS Index - Index Value
S&P 500
NASDAQ Composite
60%
80%
100%
120%
140%
160%
Jun-19
Sep-19
Dec-19
Mar-20
Jun-20
Index ValueGPB SaaS Index - Index Value
S&P 500
NASDAQ Composite
L1M
L3M
L6M
L12M
90%
100%
110%
120%
Jun-20
Jun-20
Jun-20
Index ValueGPB SaaS Index - Index Value
S&P 500
NASDAQ Composite
18
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 Q2 2019 (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
$35,230
$1,061
$982
$9,725
$2,326
$135,740
$71,888
$77,589
$1,592
$5,053
$80,384
$678
LTM (1) % of operating cash flow $m (2)
LTM – Q2 2019 % of operating cash flow $m (2)
$52,124
$1,083
$1,042
$5,760
$3,340
$120,683
$58,037
$70,543
$59,344
$1,419
$176
$8,217
▪ We predicted that companies would access capital markets to strengthen their balance sheets and brace for the full economic impact of
COVID, which would decrease the amount of cash available for acquisitions. The data shows that companies are dialing back spending
compared to Q1 2020.
▪ Despite uncertainty in the US markets, companies continue to deploy cash towards M&A, viewing the current climate as a good deal-making
environment, particularly in the middle market. Consolidators who completed large, transformative acquisitions prior to COVID are integrating
these new additions, likely leading to a slow down in mega deals throughout the COVID period.
▪ As public companies look to build liquidity cushions against potential losses, we expect companies will reserve their cash until current market
conditions show upside going into Q4 and the following year.
19
Section 4
SaaS CEO commentary
20
Software company CEO profile
AnyDesk Software GmbH is one of the leading providers of remote desktop solutions. At
the core of AnyDesk is the specially developed Codec DeskRT, which enables almost
latency-free collaboration - even in regions with poor internet connections. The software
has been downloaded more than 200m times by users worldwide and is used by
companies in nearly every country, including world-renowned Fortune 500 companies.
There are more than 9m downloads every month. This makes the company one of the 50
fastest growing companies in Germany.
“Despite the trend towards increased flexibility, working from
home has still been the exception. Now, literally over night and
due to COVID-19, it has become the new normal. We have
seen a strong acceleration in user and client growth over the
past months. Companies have become more comfortable with
people’s productivity in a remote working set-up. My view is
that COVID-19 has resulted in the digitalization of the workforce
skipping forward a year or two and I expect companies to
continue to embrace this change."
Philipp Weiser
CEO
21
Software company CEO profile
KONUX is a leading German AI scale-up, transforming railway operations for a sustainable
future. The company is combining machine learning algorithms and IIoT to deliver software-as-
a-service solutions for network operation, monitoring, and maintenance process automation
for rail companies. Since its foundation in 2014, KONUX has raised more than $50m from world-
leading investors and was selected by the World Economic Forum (WEF) as one of the world’s
30 most innovative start-ups and scale-ups worldwide.
Rail infrastructure companies in nine countries in Europe and Asia, among which Deutsche
Bahn (Germany), SNCF (France) and JRE (Japan) are using the KONUX system to improve their
network capacity, reliability, and cost-efficiency.
“Asset management and maintenance is a key cost driver for
railway infrastructure companies. Successfully introducing
predictive analytics and maintenance process automation is
one of the largest digitalization areas for rail companies and a
clear focus. Our AI-based solution changes how railway
infrastructure managers approach asset management and
maintenance while increasing capacity, reliability and cost
efficiency. The market is growing rapidly and we have only seen
an acceleration of investment in rail recently largely driven
climate change policies as traffic shifts to rail."
Andreas Kunze
CEO
22
Software company CEO profile
STELLARES is an AI powered SaaS platform, that automates talent acquisition. As opposed to
other partial solutions, STELLARES both identifies good fit passive candidates off the web, and
automatically engages them with hyper-personalized messaging. STELLARES has unique,
proprietary technology that does candidate<>job matching bi-directionally – is the talent able
to do the job? and do they want the job? Moreover, the matches are done semantically,
measuring how quickly a candidate can pick up a skill, based on their demonstrated
skills/proficiencies (‘weeks of learning’). Our proprietary AI Storytelling engine creates insights
on the ‘appeal’ of a job to each specific candidate, which can drastically improve conversion
alongside hyper personalized messaging. STELLARES eliminates over 90% of sourcing costs
(tools and labor), while speeding up hiring time by weeks or months.
“The recruiting industry's current approach to top-of-the-funnel
(TOFU) talent acquisition and sourcing is to solve only half of the
job<>candidate fit equation - “can the candidate do the job?”
It’s just too difficult, at scale, at the TOFU to figure out the other
half “does the candidate want the job?” Volume is used to
compensate for that, where hundreds of people may be
approached with somewhat generic cold outreaches per each
job opening. Leveraging data and AI to solve for fit
simultaneously on both ends, we can aggressively cut spam, as
well as create sourcing campaigns that are positive, personal
experiences for candidates. All this leads to significantly
increased reach-out to call conversion. Leveraging STELLARES's
tech we’ve seen 10X improvements in sourcing campaign
conversions."
Roi Chobadi
CEO

23
Section 5
Key SaaS metrics
24
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 =