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SECOND DECADE OF INNOVATION

SAAS 2.0

OCTOBER 2014 INSIGHTS

Amit Kashyap, PrincipalNick Wetegrove, Senior AnalystZack Lesko, CTO

AGC’s SaaS Report 2014

1

SaaS 2.0 - Second Decade of Innovation

Over the last decade, Software-as-a-Service (SaaS) has become the de-facto software delivery model for most

sectors. As SaaS startups have matured, we have seen a run of IPOs and M&A transactions involving these

companies in recent years. As the #1 ranked boutique technology investment bank over the past 5 years in

terms of M&A deal volume, AGC has seen this SaaS explosion first-hand and has advised on 8 SaaS deals

YTD in 2014 out of a total of 19 M&A and financing transactions:

SaaS companies are in general 2-3x more valuable than perpetual license software providers because cash from

customers is predominately in the future, versus perpetual software companies where cash has already been

received. SaaS customers provide enormous future cash flow potential versus the maintenance revenue streams

from perpetual customers. Moreover, SaaS contracts are multi-year contracts with monthly revenue recognition, so

revenues are far more predictable (assuming high retention) and every new customer represents incremental

growth on top of an already strong revenue base. Finally, once you have contracted a SaaS customer, the future cost

of maintaining that customer is a small fraction of the money spent to initially bring the customer on-board, meaning

that once SaaS companies achieve operating leverage, they are significantly more profitable than perpetual

license companies.

Since 2009, there has been a rapidly increasing number of SaaS M&A deals each year, including SAP’s recently

announced proposed acquisition of Concur, which has represented an increasing proportion of total software M&A

volume. The public equity markets are currently valuing SaaS companies at a median of approximately 6x 2013

revenue, with companies such as Workday and CastlightHealth the high water marks, trading at approximately 31x

and approximately 80x 2013 revenue, respectively, and a decade after becoming the first SaaS IPO, Salesforce.com

is still trading at approximately 9x revenue. We are often asked the questions – (i) what are the key valuation

drivers for the SaaS companies? (ii) what are the key financial/operating metrics that investors care about?

and (iii) what are some of the key trends/considerations which will drive SaaS in the near future? In this

report, we will address these questions and also explore what happens to a company with a perpetual license model

when it decides to transition to a SaaS model, by leveraging data from the public markets and by drawing from our

SaaS experience.

Source: SEC/Public Filings, 451 Research, Capital IQ

* Represents annualized data as of September 20, 2014


2

So what best explains the high multiples paid for much of the SaaS universe? Expected growth in forward years

(2014 and 2015 for this analysis) has some of the highest correlation with valuation (enterprise value / LTM

revenue multiple for our purposes). The table in Exhibit 3 shows the correlation of the 23 key metrics we

measured with enterprise value / LTM revenue while the chart in Exhibit 4 further illustrates that investors are willing

to provide outsized rewards to those companies that are expected to grab a greater share of this growing market.

While the fact that revenue growth metrics correlate with valuation may not be surprising, the high level of correlation

did come as somewhat of a surprise. Clearly, many believe that there may be a large opportunity available for SaaS

and other cloud companies. Specifically, recent analyst reports from IDC and Forrester estimated that the public

cloud market, consisting of SaaS, Platform-as-a-Service (PaaS), and Infrastructure-as-a-Service (IaaS), accounted

for between $45.7B and $58.0B in sales in 2013. Further, both IDC and Forrester cited Compound Annual Growth

Rates (CAGRs) of 23.0% (from 2013 to 2018) and 18.6% (from 2013 to 2020), respectively. With broader software

sales growing only 4.8% in 2013, it is clear why there is so much excitement around cloud solutions and SaaS in

particular. For our analysis, we sought to pinpoint drivers and valuation correlation for the rapidly growing SaaS

delivery model. Based on our analysis of public market data, below are the top factors with the highest positive

correlations to enterprise value / LTM revenue:

Projected & Historical Revenue Growth – Across large, medium, and small companies (based on market

capitalization; breakdown of companies by capitalization on page 10), expected revenue growth in 2014 over

2013 had a very strong correlation with current valuation. Over this same period, the correlation does

weaken somewhat among small cap companies. Many of these smaller companies are either newly public or

legacy SaaS companies that have not found widespread traction. Either way, as is the case with many small

cap companies, small cap SaaS companies can show greater volatility than large cap peers, potentially

contributing to the disconnect between valuation and growth metrics. 2015E / 2014E Revenue Growth is also

highly correlated with valuation across large, medium, and small cap companies. Revenue growth data from

this period shows a potentially key insight among SaaS company valuations. Specifically, small cap

companies show the highest positive correlation with this metric, potentially indicating investors’ appetite for

longer term and potentially riskier growth prospects among smaller companies. Also in line with the future

revenue growth metrics, historical 2013A / 2012A revenue growth is also strongly positively correlated with

valuation.

Qualitative Factors – We know that strong visibility and the recurring nature of SaaS revenues are also key

factors which contribute to high SaaS multiples. Given that most investors highly value predictability, they

have been willing to pay premium multiples for the visibility that contracted recurring revenue streams

provide SaaS companies.

Valuation Correlation and Drivers


3

Customer retention rate is also one of the most critical metrics for SaaS; however, it is not a GAAP number, so

various companies don’t necessarily report it in a similar fashion. Some companies report it on a revenue basis, while

others report it based on number of customers, and some others have a different way of calculating it. But potentially

the most useful retention rate metric is based upon revenues, rather than customers. For a successful SaaS

company we see retention rate higher than 90% as seen from the table below.

Company Retention Rate Calculation EV / 2013A Revenue

Constant Contact 97.8% +- 0.5% Customer count basis 2.8x

Marin Software 97% Revenue basis 2.8x

ServiceNow 96% Revenue basis 19.7x

Ultimate Software 96% Customer count basis 9.8x

Benifitfocus 95% Revenue basis 7.5x

Cornerstone OnDemand ~95% Revenue basis 11.5x

Callidus 90%+ Customer count basis 4.4x

Jive Software 90%+ Renewal rate excluding upsell (for transactions > $50K) 2.5x

Proofpoint 90%+ Customer count basis 9.8x

Tangoe 90%+ Revenue basis 2.5x

Bazaarvoice 89% Customer count basis 3.3x

Medidata Solution 88% Customer count basis 9.1x

Brightcove 84% Revenue basis 1.6x

Source: SEC Filings; Based on recent data from companies that disclose retention rate in public filings

Impact of Retention Rate on Valuation Multiple


4

We can see below the impact of Company’s target market (horizontal vs. vertical focus) and revenue footprint on

valuation multiple. From our universe of 48 companies (as seen in Exhibit 1), we classified 37 as horizontally-focused

and 11 as vertically focused. We observed that there is in fact a valuation multiple difference between these

categories. Vertically focused companies are trading at approximately a 35% premium to their horizontally

focused peers. The difference in valuation may be because there is considerable whitespace with less competition

for these industry-focused SaaS companies to replace legacy on-premise companies. It is also interesting to note

that some horizontally focused SaaS companies which have solutions targeted towards a narrow functional area

(BCOV, TNGO, JIVE etc.), can trade at revenue multiples in 1-3x range if they fail to broaden their portfolio or

generate substantial customer traction. Successful SaaS companies focused on broader functional areas such as

sales and marketing, ERP, IT operations, human resources etc. generally trade at high multiples as they have much

larger addressable market and are able to add capabilities through product development or acquisitions. Up and

coming vertical SaaS companies may look to stay platform agnostic to lower the risk in the business model. If your

company extends the functionality of a certain horizontal platform for a specific industry, that can be a risky strategy

as the platform company can add similar capabilities and cannibalize your sales.

$125

$260

0

50

100

150

200

250

$300

Median LTM Revenue

US

D in

mill

ion

s

Horizontally-Focused Vertically-Focused

$126M Overall

5.5x

7.5x

5.0x

5.5x

6.0x

6.5x

7.0x

7.5x

Median EV / LTM RevenueHorizontally-Focused Vertically-Focused

5.5x Overall

Impact of Target Market & Market Cap on Valuation Multiple

Definitions: Horizontal vendors provide solutions for a functional areas (sales, finance, HR, etc.), Vertical vendors

provide solutions for a specific industry (healthcare, financial services, etc.)

Vertically-Focused SaaS Companies Trade at a Premium of 35%


5

To explore the impact of a company’s revenue footprint on the valuation drivers, we divided the universe into three

buckets (less than $1B Market Cap (small), $1B - $5B Market Cap (medium), over $5B Market Cap (large)) and re-

ran the correlation analysis.

Interestingly, there was meaningful difference among these three buckets: companies with less than $1B market

cap had the lowest EV/LTM revenue multiple of 3.5x, followed by companies with market cap between $1B to

$5B at 8.5x revenue multiple, and the largest companies with largest median revenue multiple of 14.3x.

Obviously, these are medians and there is wide dispersion around these medians, hence the response to “what is the

best scale to go public” has many factors besides the medians shown above. It is possible that investors may not be

measuring SaaS companies by the same yardstick, potentially implying that valuation is still more art than science.

$112

$213

$579

0

100

200

300

400

500

$600

Median LTM Revenue

US

D in

mill

ions

Small (<$1B) Medium ($1B-$5B) Large (>$5B)

$126M Overall

3.5x

8.5x

14.3x

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

16.0x

Median EV / LTM Revenue

Small (<$1B) Medium ($1B-$5B) Large (>$5B)

5.5xOverall

Impact of Target Market & Market Cap on Valuation Multiple (Contd)

Definitions: Small - <$1B Market Cap, Medium - $1B-$5B Market Cap, Large - $5B Market Cap

SaaS Companies That Can Scale are Awarded Higher Multiples


6

Apart from our findings on correlation and valuation, we also uncovered some broader higlights on the current state

and growth potential for SaaS companies:

The SaaS model remains a relatively small component of the global software market – While this report

highlights the growth potential of SaaS companies, it is important to keep in mind that the SaaS delivery

model is a relatively small part of the global software market. In 2013, Gartner estimated that worldwide

software sales were $407.3B, while Forrester and IDC respectively estimated SaaS sales of $36.0B and

$32.9B in 2013. These figures equate to SaaS sales of somewhere between 8.0-9.0% of all software

sales in 2013. Even when including PaaS and IaaS figures, the proportion of public cloud services sales to

total software sales remains in the 10.0-15.0% range. However, this is a bit of an apples to oranges

comparison as SaaS revenue will be spread across multiple years. Though SaaS companies are a relatively

small segment of broader software sales, the explosive growth of SaaS solutions and continued acquisitions

of SaaS providers by legacy software companies (as noted on page 8), could continue to propel the segment

further.

The vast majority of new software companies are using SaaS models – As non-SaaS acquirers continue

to make the bulk of SaaS acquisitions (see page 8), it is clear that SaaS can be seen as the model of the

future for software companies and that new software company formations will likely skew towards SaaS

models. Over 20% of all tech IPOs YTD in 2014 have been for SaaS companies (given that software

companies make up a subset of all tech IPOs, SaaS companies also make up a major component of the

software sub-segment). Further, with median growth rates in 2014 expected to reach 26%, SaaS companies

will likely be a continued force in software market going forward.

SaaS M&A multiples are significantly and consistently higher than multiples paid in the broader

software universe – Based on the EV / LTM revenue multiples of SaaS M&A deals and broader software

M&A deals in AGC’s M&A database dating back to 2009, SaaS companies have received a median

multiple of 5.5x versus 2.8x for all software companies (based on SaaS companieswith disclosed EV /

LTM revenue multiples and Enterprise Values greater than $15M). This 120% premium likely represents a

significant point of interest for any software company seeking an exit through acquisition. As touched upon in

other parts of this paper, numerous factors could contribute to buyers’ willingness to pay higher multiples,

including the contracted and recurring nature of SaaS revenues as well as potential leverage benefits of the

SaaS model. However, we should caveat that a SaaS to traditional software license revenue comparison is

not apples to apples, hence this comparison is a bit biased.

Broader SaaS Findings


7

When we think of something as broad and vibrant as SaaS, it is tough to limit the discussion to just a few key trends.

Nevertheless, based on our conversations in the market, here are some important key themes which we think may

have strong and lasting momentum.

Vertical SaaS:

Since 2013, we have seen vertical SaaS companies such as Veeva Systems and Textura join the public market and

obtain attractive valuations. Due to their narrower focus, vertical SaaS companies tend to have a more efficient sales

and market model and more viral marketing potential, especially as the product reaches the critical mass of users.

Cloud-based solutions also have a unique advantage – they are able to break through individual data silos which

prevent industry-wide benchmarking and analytics. These are some potential reasons why vertical SaaS companies

trade at higher multiples. Over the next few years, we could potentially see a rich ecosystem of publicly-traded

vertical SaaS companies. Specifically, we could see the next generation of companies coming up in vertical markets

such as Healthcare (Practice Fusion, Doximity, etc.), Real Estate (Appfolio, Yardi, etc.), and Education (Coursera,

Knewton, etc.).

Sales & Marketing Tools:

The use of online tools such as webinars, demos, video conferencing is on the rise as more SaaS companies

leverage these tools and the easy access to their own software (which resides in the Cloud) to gain trial accounts and

paying customers (for smaller deals). At the same time, as customer engagement now extends well beyond the initial

sale, companies are increasingly analyzing customer acquisition, retention, and upsell data for enterprises. Hence,

there is an overall change in the sales and marketing tactics being used by enterprise SaaS companies and we could

increasingly see solutions designed to automate, manage, and improve the sales and marketing process beyond

what is offered by traditional CRM vendors.

Freemium Model:

B2B SaaS vendors have used freemium model with some success over the last few years. This is especially true of

collaboration and workflow/productivity solutions, which has benefits at the individual or group level and can be

adopted within an enterprise without the involvement of corporate IT. After the successful “trial” phase, the user or

the group buys the product for corporate use, sometimes leading to enterprise-wide deals. Once there is a critical

mass of users within the enterprise, the corporate IT is forced to allow use of the solution across the organization.

The caveat here is that not all enterprise products can be sold in a freemium model and given the meteoric rise in

use of this model across various applications, sometimes for solutions which are ill-suited for this model, we are now

seeing a trend away from it towards charging a small amount upfront.

Key Trends in SaaS


8

Cloud Integration:

As the number of SaaS solutions continues to grow, we are seeing an increased need to integrate the myriad of

Cloud-based and on-premise solutions used by the enterprise. Gartner estimates the annual spending for this Cloud-

integration category at more than $1.5 billion. Given the rapid adoption of SaaS, we could potentially see continued

growth among Integration-as-a-Service providers.

Acquisition of SaaS Companies by non-SaaS Software Vendors:

Similarly in the M&A market, non-SaaS companies could continue to represent the bulk of acquirers for SaaS

companies given historical trends. Since 2009, traditional, non-SaaS companies have been the acquirer in 72% of all

SaaS acquisitions with disclosed EV / LTM revenue multiples and enterprise values greater than $15M. As the race

for legacy technology companies to migrate to a SaaS model continues, this trend could potentially continue into the

future.

Key Trends in SaaS (Continued)


9

Another question we get very often from our SaaS clients is “how do our metrics compare to other SaaS

companies?” Looking to public companies to answer the valuation question based on operating metrics has obvious

flaws as these are comparatively more mature and established companies, yet many are still growing rapidly and

therefore spend a great deal on sales and marketing and have not achieved a “steady state.” Having said that, these

are still good benchmarks for younger companies to compare themselves against as the public SaaS companies

represent the “next level” which they aspire to reach.

With these caveats, we note that median annual growth rate in our universe of SaaS public companies is projected to

be 26% for 2014 and 22% for 2015 compared to broader public cloud services sector growth rates of 23% (from 2013

to 2018) and 19% (from 2013 to 2020) from IDC and Forrester, respectively. Anecdotal evidence suggests that good,

enterprise-focused SaaS companies have a retention rate of 90%+. Since this is not a GAAP metric and there are

different ways to calculate retention rate (as discussed above), we have not done an analysis for public companies.

The public SaaS companies have a median gross margin of approximately 66%, which is expected to grow to 69%

by end of 2014 (based on Capital IQ data). 2013 EBITDA margin for the sector is (10%), which is expected to

improve to 2% for 2014 (based on Capital IQ data). This demonstrates the earning power of the SaaS delivery

model, once you reach the inflection point. Sales and marketing expense as a percentage of revenue was 39% at the

median point, given that this expense is recognized upfront, unlike revenue. Median R&D expense for the sector is

20% and median G&A expense for the sector is 17%. Just to reiterate, these metrics are for companies with a

median revenue of $126 million. Hence, if your business is still smaller than the median mentioned above, these

ratios could be substantially higher.

Financial Metrics for SaaS Companies

Source: Capital IQ

Median Metrics for Public SaaS Companies

Growth Margins

Revenue Gross Margin EBITDA MarginS&M /

Rev

R&D /

Rev

G&A /

Rev2014E /

2013A

2015E /

2014E2013A 2014E 2013A 2014E 2013A 2013A 2013A

Median 26% 22% 66% 68% (10%) 2% 39% 20% 17%

(a) Based on closing stock prices on September 15, 2014


10

We selected a set of 48 publicly traded SaaS companies across various sectors and conducted regression analysis

across a comprehensive set of 23 operating metrics (as shown in Exhibits 3 & 4) against Enterprise Value (EV). Here

is a snapshot of the characteristics of the companies we used for this analysis.

Horizontally-focused software vendors provide solutions which are used by functional areas within companies (such

as sales, finance, HR, etc.) across a wide variety of industries. Vertically-focused software vendors provide solutions

for a specific industry (such as healthcare, financial services, etc.). The first wave of public SaaS companies such as

Salesfoce.com, NetSuite, etc., were horizontal, focused on applications such as CRM, ERP, etc. More recently, we

have seen IPOs in 2013 for companies such as Veeva Systems and Textura which are focused on certain industry

verticals (life sciences and construction, respectively).

52% of the public companies we reviewed had LTM revenues in the range of $75-$200M and approximately two-

thirds had negative EBITDA, indicating that a large portion of the public SaaS universe is still comprised of relatively

young companies with a substantial potential growth opportunity.

8%

33%

58%

Market Cap

Large Cap (>$5B) Mid Cap ($1B-$5B) Small Cap (<$1B)

77%

23%

Target Market

Horizontally-Focused Vertically-Focused

4%

23%

52%

21%

Revenue Range

$500M+ Rev $200M-$500M Rev $75-$200M Rev <$75M Rev

35%

65%

EBITDA Positive or Negative ?

+ve EBITDA -ve EBITDA

SaaS Data Set

Source: Capital IQ Source: Capital IQ

Source: CapitalIQ Source: Publicly available information; AGC

Most Public SaaS Companies are Small Caps and are Horizontally-Focused

The Majority of Public SaaS Companies are Sub-$75M in Revenue and EBITDA Negative


11

We think it is worthwhile to discuss why GAAP accounting may not exactly capture the true economics of a SaaS

company, unlike its perpetual license model counterparts. Software companies that sell traditional perpetual licenses

typically recognize the full license revenue up front upon delivery (sometimes in the high 6 figures to well into the 7

figures), which helps it cover many of the costs of developing and deploying the software that have been recognized

as incurred. This enables perpetual license companies to achieve profitability (and positive cash flow) sooner than

SaaS companies. But GAAP accounting creates a mismatch in timing for SaaS companies. A SaaS company will

only recognize a small portion of the total expected license revenue over the life of a contract in each month (i.e. –

1/24th of the total each month in a two year contract). However, a significant portion of the associated costs of this

contract (such as the development required, implementation and sales/marketing costs) are usually recognized

upfront as incurred. Therefore, solely looking at the GAAP income statement is not a good depiction of the financial

status of a SaaS company. Cash flow is also not effectively matched for a SaaS company, as costs are paid up front

while the customer usually pays at most one year of a multi-year contract upfront (and often pays in smaller upfront

amounts). For these reasons, traditional earnings or cash flow-based valuation methods are not really relevant for

determining SaaS valuations until these companies become more fully mature.

Imagine a SaaS company which charges its customers $100 a month, with its average customer using the platform

for 36 months on a three year contract. Once the sales team has sold the product to its customer there is no

additional sales and marketing spend required over the life of this contract (at least that is tied to the $100 monthly

revenue; there may be some sales cost towards the end of the contract to ensure renewal). If we were told that the

initial cost to acquire the customer is $1,000, then the effective “value” from the customer is $100*36-$1,000 = $2,600

(not taking the time value of money into account for now). However, under GAAP accounting, in year 1 only $1,200 in

revenue (33% of total) is recognized whereas $1,000 in customer acquisition expense (or 100% of total) is

recognized. Hence, in effect, various expenses are spread over only a portion of the overall revenue generated from

the customer. This issue can get even worse when the business model involves usage based revenue or a

substantial upsell model. This is a contributing factor to why the valuation multiple for SaaS companies seem much

higher compared to companies with other business models. Sometimes, in order to better compare SaaS multiples to

historical software multiples, we like to look at the revenue multiple using life time value (LTV) times number of

customers as denominator instead of GAAP revenue. With LTV as denominator (rather than GAAP revenue),

valuation multiples start to look very reasonable for most of the SaaS companies. Also, a lot of these rapidly growing

SaaS companies are minimally profitable or unprofitable in the initial phase of their life, when the critical mass of

paying customers is not enough to support the customer acquisition expense of additional new customers. Obviously,

we have to look at the spread between LTV and customer acquisition cost (CAC) to determine true profitability of the

customers.

SaaS 2.0 - Second Decade of Innovation SaaS Valuation Indication Caveats


12

While nearly every software company started in the past few years has chosen a SaaS model, many companies,

both public and private, have sought to convert to SaaS to become more competitive in their market and to garner

better valuations. Public investors and strategic buyers put a huge premium on SaaS revenue because customers

are signed up to pay month after month well into the future, as compared to older, perpetual software companies

where customers have already made the bulk of their cash payment up front. Moreover, the SaaS customer does not

own the software, but only rents it and so has to sign up again and again to keep the software service active. Before

we get further into that discussion, it is worthwhile to mention some of the other key areas where SaaS varies

significantly from a traditional on-premise business.

The SaaS model is often extremely capital intensive, the median capital raised by the 48 public companies our study

was approximately $58 million, and still less than half of these companies are EBITDA positive, signifying additional

capital needs. Again, this is due to revenues/cash related to a new contract realized over the length of the contract,

while most of the expenses are immediate. This is one of the reasons why we still see some bootstrapped companies

either choosing a software license model or SaaS companies requesting upfront payment for a year in advance.

Although capital intensive, SaaS brings a much higher level of operating leverage compared to traditional software

license model. Hence, a SaaS company’s profitability ramps much more quickly once they breakeven (assuming

there is no other major change in the business and the churn is in-line with other healthy SaaS companies). Unlike an

on-premise model, where 100% of revenue generation requires nearly 100% of the sales team, SaaS companies

only need the sales team to bring in new customers and upsell new services to existing customers. Moreover, if the

pricing is based on number of seats or other similar metrics, there is an automatic increase in revenue as the solution

is adopted more widely within an organization. On the flip side, for a SaaS company getting off the ground, sales and

marketing expenses can create a large cash and P&L hit until the company reaches critical mass at a much later

stage to start to achieve the benefits of the SaaS model.

On the technical front, multi-tenancy simplifies the upgrade and support functions, thereby creating operating

leverage. Multi-tenancy is an architecture in which a single instance of a software application serves multiple

customers (each customer is called a tenant). In the purest form of multi-tenancy, all customers are served from a

single Cloud-based infrastructure in which every component is shared. We can see how much more efficient this is

versus the old server hosting model, where the ratio of server:customer is 1:1. This model is extremely scalable as

well because the SaaS company can add as much commodity hardware as required to generate scale but

companies can and do run into performance issues at various components (such as the database) when solutions

are deployed at substantial scale. That said, some SaaS companies do use multiple instances of the software in an

effort to improve performance and functionality. It should be noted that multiple instances dramatically increases the

complexity of SaaS deployments as SaaS companies have to position applications and infrastructure near customers

around the globe to deal with latency issues. As customers continue to demand increased performance, deployments

will continue to be scaled from a single location to dozens of global locations which necessitates complicated,

sometimes near real-time, synchronization.

Transitioning to a SaaS Company


13

Transitioning to a SaaS Company (Continued)

Nonetheless, without the burden of old software to support, all resources can be directed at providing the best

software to all customers. The elimination of the support burden saves development costs and dramatically increases

the ability of the SaaS company to respond to new market opportunities. The key issue with multi-tenancy is that the

customers have limited flexibility to customize the software. This should be an important consideration while selecting

the architecture of the software. The other big difference is a change in mindset, in a traditional software license

business, the key focus is to sell the software and the vendor’s risk of customer loss is limited for the ongoing

revenue components (maintenance and support). However, in a SaaS model the customer can choose to walk away

anytime if the solution does not provide a compelling value proposition on an ongoing basis (think of product

roadmap) or if the customer is unhappy in any other way. Hence, the vendor is really providing a comprehensive

solution to a business problem than just a software product. This requires substantial re-tooling of the business

model and re-staffing.

Getting back to the discussion on transition to a SaaS company, for a company considering this transition, there are

multiple things to consider. Converting to SaaS typically takes at least a couple of years and requires a significant

amount of capital. The biggest question related to the sector and the customers is – “is the sector ready for SaaS?”

Ongoing customer conversations will provide the response to this question. Data security in some highly regulated

industries is still preventing a more widespread adoption of the SaaS model. Whether existing customers will

transition to SaaS, and if so, over what timeframe is also an important factor to consider. There are financial and

operating considerations for this transition. There is likely to be a dramatic reduction of recognized revenue from

software licenses (due to the ratable recognition of SaaS revenue) and a somewhat lesser reduction of upfront cash

received from new business (due to payment over the life of a contract). Meanwhile, an upfront investment in the

infrastructure needed to create and host a SaaS solution is required (development time/resources to create a single-

instance, multi-tenant SaaS platform, servers and DBs to host the solution/data, investment in security, compliance

and scalability of solution, etc). The result is a decline in revenue and cash, increase in costs and greatly decreased

profitability or increase in losses during transition. Among operating considerations, sales compensation plans and

service provider mentality are critical. The company needs to incent sales forces to change their ways and sell SaaS

deals that bring in significantly less Year 1 revenue. There is a need to make sales compensation attractive in Year 1

and also incent customer satisfaction for contract renewal. The SaaS company is now a service provider, and not just

a vendor, and must therefore adopt this as a cultural shift in all phases of its operations, particularly support. No

downtime is acceptable.

As we consider the above factors (and more), transitioning to a SaaS model is a huge undertaking, which cannot be

taken lightly. We will review two (2) companies (Concur and Callidus), which have successfully undergone this

transition.


14

Transitioning to a SaaS Company: Concur Case Study

Concur Technologies is a leading provider of SaaS travel and expense management solutions that was recently

acquired by SAP in September 2014. They undertook a transition from On-Premise to SaaS as a public company

starting in 1999. During the key 2-year transition period (1999-2000), Concur spent $67.6 million on sales and

marketing (88% of total revenue) and $50.6 million on R&D (66% of total revenue). Combined loss from operations

totaled ($190) million over a 4-year period before turning the corner. SaaS revenue during transition period was less

than $1 million, but scaled quickly in subsequent years as sales and R&D costs came down substantially to mid

20%s for sales, low teen %s for R&D. License revenue dropped sharply in the 1st year of subscription revenue and

disappeared entirely by year 4 (2004) and service revenue went into gradual decline and went to zero in year 10 of

the transition.

Source: Public Filings; Capital IQ

Concur

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Revenue

Subscription - - - 0.9$ 4.6$ 10.4$ 21.6$ 40.2$ 53.0$ 80.5$ 116.0$ 206.3$ 239.2$ 292.9$ 349.5$ 439.8$

Service 2.5 7.0 13.8 22.8 23.8 24.9 26.4 16.3 18.8 16.6 13.1 9.2 8.4 - - -

License 6.5 13.2 24.0 14.9 12.5 9.8 8.7 - - - - - - - - -

$9.0 $20.1 $37.8 $38.6 $40.9 $45.1 $56.7 $56.6 $71.8 $97.1 $129.1 $215.5 $247.6 $292.9 $349.5 $439.8

Operating expenses

Sales and marketing 6.7$ 16.1$ 29.0$ 38.6$ 24.9$ 16.7$ 14.5$ 14.3$ 17.5$ 22.9$ 34.2$ 59.9$ 79.3$ 97.0$ 141.4$ 175.5$

Research and development 4.5 10.3 19.4 31.2 16.4 10.6 10.4 8.8 9.3 12.4 15.9 23.0 25.3 27.2 34.8 43.8

Operating expenses (% of Revenue)

Sales and marketing 74% 80% 77% 100% 61% 37% 26% 25% 24% 24% 26% 28% 32% 33% 40% 40%

Research and development 50% 51% 51% 81% 40% 24% 18% 16% 13% 13% 12% 11% 10% 9% 10% 10%

Operating Income (Loss) (7.6)$ (26.0)$ (48.4)$ (7.9)$ (36.2)$ (12.5)$ 0.8$ 1.7$ 5.1$ 7.1$ 13.7$ 26.7$ 39.2$ 41.0$ 9.4$ 16.5$

0

50

100

150

200

250

300

350

400

$450

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

$ M

illi

on

s

Concur

Subscription Service License

Transition to SaaS Model


15

Callidus is a leading provider of sales effectiveness SaaS, enabling clients to improve sales performance

management, demand generation and revenue. The Company undertook a transition from license to recurring

revenue in 2007. Callidus has grown recurring revenue from 23% in its first year of the transition to 74% in 2012, with

GAAP Gross Margin increasing to 47% in 2012, up from 40% in 2011. License revenue went into gradual decline and

went to zero in year 5 of the transition.

Transitioning to a SaaS Company: Callidus Case Study

Source: Public Filings; Capital IQ

Callidus

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Revenue

License 37.5$ 12.8$ 17.8$ 27.8$ 28.6$ 17.1$ 5.0$ 2.8$ 3.3$ -

Maintenance 34.2 45.9 43.6 48.3 - - - - - -

Services and other - - - - 49.1 49.5 29.7 15.1 17.5 24.0

Recurring - - - - 23.9 40.5 46.3 53.0 63.0 70.9

$72 $59 $61 $76 $102 $107 $81 $71 $84 $95

Operating expenses

Sales and marketing 20.8$ 20.6$ 18.8$ 25.5$ 30.8$ 29.5$ 20.4$ 16.2$ 20.2$ 32.4$

Research and development 11.0 13.4 12.4 14.6 15.6 14.6 13.9 10.4 12.0 16.6


Sales and marketing 29% 35% 31% 33% 30% 27% 25% 23% 24% 34%

Research and development 15% 23% 20% 19% 15% 14% 17% 15% 14% 18%

Operating Income (Loss) 1.4$ (26.5)$ (10.1)$ (11.6)$ (15.6)$ (14.4)$ (17.9)$ (13.2)$ (16.8)$ (23.9)$

0

15

30

45

60

$75

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

$ M

illi

on

s

Callidus

Services and other License Maintenance Recurring

Transition to SaaS Model

Callidus

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Revenue

License 37.5$ 12.8$ 17.8$ 27.8$ 28.6$ 17.1$ 5.0$ 2.8$ 3.3$ -

Maintenance 34.2 45.9 43.6 48.3 - - - - - -

Services and other - - - - 49.1 49.5 29.7 15.1 17.5 24.0

Recurring - - - - 23.9 40.5 46.3 53.0 63.0 70.9

$72 $59 $61 $76 $102 $107 $81 $71 $84 $95

Operating expenses

Sales and marketing 20.8$ 20.6$ 18.8$ 25.5$ 30.8$ 29.5$ 20.4$ 16.2$ 20.2$ 32.4$

Research and development 11.0 13.4 12.4 14.6 15.6 14.6 13.9 10.4 12.0 16.6


Sales and marketing 29% 35% 31% 33% 30% 27% 25% 23% 24% 34%

Research and development 15% 23% 20% 19% 15% 14% 17% 15% 14% 18%

Operating Income (Loss) 1.4$ (26.5)$ (10.1)$ (11.6)$ (15.6)$ (14.4)$ (17.9)$ (13.2)$ (16.8)$ (23.9)$

0

15

30

45

60

$75

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

$ M

illi

on

s

Callidus

Services and other License Maintenance Recurring


16

($US in millions) Market Data Operational Data

EV / Revenue EV / EBITDA CY Revenue CY EBITDA Revenue Growth

CompanyEnterprise

Value(a) (b) 2013A 2014E

(c) 2013A 2014E(c) 2013A 2014E

(c) 2013A 2014E (c) 2014E /

2013A

2015E /

2014E

LTM

GMLQ GM

LQ Adj.

EBITDA

Margin

salesforce.com $37,138 9.1x 6.9x NM 40.2x $4,071 $5,368 ($61) $925 32% 24% 76% 77% 3%

Workday 14,586 31.1x 18.9x NM NM 469 771 (119) (22) 64% 46% 64% 65% -25%

ServiceNow 8,345 19.7x 12.4x NM 142.5x 425 672 (43) 59 58% 39% 63% 65% -21%

NetSuite 6,285 15.2x 11.5x NM 143.0x 415 549 (37) 44 32% 29% 68% 68% -9%

athenahealth 5,026 8.4x 6.7x 91.7x 37.4x 595 747 55 134 26% 24% 59% 60% 9%

The Ultimate Software Group 4,032 9.8x 8.0x 68.6x 33.5x 410 506 59 120 23% 23% 60% 59% 13%

Veeva 3,513 16.7x 11.6x 86.3x 45.5x 210 303 41 77 44% 25% 62% 63% 23%

Dealertrack Technologies (d) 3,041 6.3x 3.6x 52.5x 16.2x 482 840 58 188 18% 20% 41% 47% 15%

Guidewire 2,614 8.3x 7.2x NM 39.1x 315 363 (4) 67 15% 7% 57% 72% 37%

Medidata Solutions 2,506 9.1x 7.3x 78.6x 30.9x 277 342 32 81 23% 21% 75% 75% 12%

Cornerstone OnDemand 2,128 11.5x 7.9x NM 676.8x 185 269 (30) 3 45% 37% 71% 72% -21%

Demandware 1,568 15.1x 10.4x NM 293.5x 104 151 (16) 5 45% 41% 74% 72% -22%

Zendesk 1,475 20.5x 12.2x NM NM 72 121 (19) (29) 67% 43% 64% 60% -68%

Proofpoint 1,354 9.8x 7.3x NM NM 138 186 (17) (1) 35% 24% 68% 67% -16%

RealPage 1,222 3.2x 3.0x 22.5x 17.9x 377 402 54 68 7% 10% 59% 56% 2%

Marketo 1,207 12.6x 8.3x NM NM 96 145 (41) (28) 51% 32% 64% 66% -30%

Castlight Health 1,036 79.8x 24.1x NM NM 13 43 (62) (79) 232% 83% 12% 30% -204%

Fleetmatics Group 987 5.6x 4.3x 22.0x 15.4x 177 229 45 64 29% 24% 75% 74% 19%

Paylocity 980 10.8x 7.9x 502.2x 1041.9x 91 124 2 1 36% 29% 50% 48% -16%

LogmeIn 911 5.5x 4.2x 63.0x 19.2x 166 217 14 47 31% 17% 88% 87% 7%

Paycom Software 889 8.3x 6.2x 53.6x 40.9x 108 144 17 22 34% 29% 82% 83% 14%

Constant Contact 790 2.8x 2.4x 29.5x 13.1x 285 331 27 60 16% 15% 72% 73% 11%

Benefitfocus 782 7.5x 5.8x NM NM 105 135 (23) (50) 29% 27% 37% 35% -48%

RingCentral 779 4.9x 3.6x NM NM 161 215 (32) (22) 34% 25% 63% 63% -20%

OPOWER 777 8.8x 6.3x NM NM 89 123 (12) (24) 39% 22% 66% 66% -45%

SPS Commerce 747 7.2x 5.9x 76.0x 42.6x 104 126 10 18 21% 19% 69% 69% 10%

Qualys 693 6.4x 5.3x 58.2x 27.8x 108 132 12 25 22% 20% 77% 78% 15%

Textura 670 14.0x 10.4x NM NM 48 65 (24) (6) 35% 53% 82% 80% -27%

LivePerson 607 3.4x 2.9x 97.0x 28.3x 178 206 6 21 16% 15% 76% 74% 4%

Bazaarvoice 547 3.3x 3.0x NM NM 164 184 (20) (21) 13% 12% 67% 64% -15%

2U 531 6.4x 4.9x NM NM 83 108 (27) (18) 30% 30% 74% 72% -40%

IntraLinks 515 2.2x 2.1x 39.9x 14.5x 234 250 13 35 7% 6% 73% 73% 1%

Callidus Software 494 4.4x 3.8x NM 36.9x 112 131 (5) 13 17% 16% 61% 60% 0%

Tangoe 474 2.5x 2.2x 28.9x 13.5x 189 217 16 35 15% 17% 55% 54% 5%

Q2 Holdings 432 7.6x 5.6x NM NM 57 77 (13) (12) 35% 31% 39% 43% -18%

Jive Software 369 2.5x 2.1x NM 112.9x 146 174 (61) 3 20% 15% 62% 62% -24%

SciQuest 342 3.8x 3.3x NM 16.9x 90 104 (0) 20 16% 13% 70% 69% 5%

Amber Road 330 6.3x 5.2x NM NM 53 63 (12) (2) 21% 17% 58% 56% -8%

ChannelAdvisor 328 4.8x 3.8x NM NM 68 87 (11) (19) 27% 26% 72% 69% -40%

Aerohive Networks 310 2.9x 2.1x NM NM 107 145 (28) (14) 35% 23% 67% 68% -14%

E2open 271 3.9x 3.4x NM NM 69 80 (19) (13) 16% 22% 62% 63% -31%

Five9 246 2.9x 2.5x NM NM 84 100 (23) (27) 19% 21% 45% 45% -24%

Marin Software 214 2.8x 2.2x NM NM 77 99 (30) (21) 28% 19% 63% 63% -30%

Rally Software 214 2.9x 2.4x NM NM 74 88 (16) (27) 18% 21% 75% 73% -36%

Zix Corporation 202 4.2x 3.9x 18.7x 18.3x 48 51 11 11 7% 15% 84% 84% 16%

Brightcove 172 1.6x 1.4x NM NM 110 123 (2) (2) 12% 10% 66% 66% -4%

Covisint 130 1.3x 1.4x NM ND 98 92 (27) ND -7% 2% 38% 29% -45%

Halogen Software 128 2.7x 2.3x NM NM 48 57 (4) (8) 18% 21% 74% 72% -19%

Median $778 6.4x 5.1x 58.2x 35.2x $109 $145 ($12) $3 26% 22% 66% 66% (15%)


(b) Calculated as Equity Value plus total debt, minority interest (at book value unless otherwise noted) and preferred stock, less cash & equivalents

(c) Projections represent Wall Street estimates

(d) Dealertrack Technologies revenue growth rate normalized in 2014E/2013A period to 18% from 70% to account for Dealer.com acquisition closed in March, 2014

Exhibit 1: SaaS Public Company Market Data

Source: Capital IQ, List includes publicly traded SaaS

companies on major US and/or Canadian stock

exchanges as designated by and to the best of AGC’s

knowledge


17

($US in millions) Growth Margins

Revenue Gross Margin EBITDA Margin S&M / Rev R&D / Rev G&A / Rev

Company2014E /

2013A(c)

2015E /

2014E(c) 2013A 2014E

(c) 2013A 2014E(c) 2013A 2013A 2013A

2U 30% 30% 73% 75% -33% -17% 65% 23% 18%

Aerohive Networks 35% 23% 67% 68% -26% -10% 54% 24% 17%

Amber Road 21% 17% 58% 57% -22% -3% 31% 15% 20%

athenahealth 26% 24% 60% 62% 9% 18% 25% 10% 16%

Bazaarvoice 13% 12% 71% ND -12% -11% 51% 22% 15%

Benefitfocus 29% 27% 40% 39% -22% -37% 34% 22% 10%

Brightcove 12% 10% 67% 67% -2% -1% 37% 19% 17%

Callidus Software 17% 16% 57% 63% -4% 10% 31% 15% 20%

Castlight Health 232% 83% -33% 35% -476% -183% 260% 117% 70%

ChannelAdvisor 27% 26% 73% 72% -16% -22% 55% 19% 21%

Constant Contact 16% 15% 71% 73% 9% 18% 39% 16% 13%

Cornerstone OnDemand 45% 37% 71% 73% -16% 1% 59% 11% 18%

Covisint -7% 2% 44% ND -28% ND 35% 12% 26%

Dealertrack Technologies (d) 18% 20% 42% 51% 12% 22% NM 3% NM

Demandware 45% 41% 73% 76% -16% 4% 50% 20% 22%

E2open 16% 22% 61% ND -27% -17% 49% 25% 14%

Five9 19% 21% 42% 49% -28% -27% 33% 21% 21%

Fleetmatics Group 29% 24% 75% 75% 25% 28% 32% 6% 20%

Guidewire 15% 7% 52% ND -1% 18% 20% 23% 11%

Halogen Software 18% 21% 75% 73% -7% -13% 46% 21% 18%

IntraLinks 7% 6% 72% 76% 6% 14% 46% 9% 24%

Jive Software 20% 15% 62% 67% -42% 2% 59% 38% 17%

LivePerson 16% 15% 76% 76% 4% 10% 35% 20% 22%

LogmeIn 31% 17% 89% 88% 9% 22% 53% 17% 13%

Marin Software 28% 19% 60% 67% -38% -22% 55% 27% 22%

Marketo 51% 32% 60% 68% -42% -19% 65% 24% 18%

Medidata Solutions 23% 21% 75% 75% 12% 24% 24% 18% 23%

NetSuite 32% 29% 67% 72% -9% 8% 51% 19% 12%

OPOWER 39% 22% 65% 65% -13% -19% 34% 30% 15%

Paycom Software 34% 29% 82% 80% 15% 15% 40% 2% 25%

Paylocity 36% 29% 48% ND 2% 1% 24% 9% 17%

Proofpoint 35% 24% 70% 71% -12% 0% 52% 25% 12%

Q2 Holdings 35% 31% 38% 42% -23% -16% 29% 16% 21%

Qualys 22% 20% 77% 78% 11% 19% 39% 20% 16%

Rally Software 18% 21% 78% 74% -21% -31% 52% 28% 22%

RealPage 7% 10% 61% 63% 14% 17% 25% 13% 16%

RingCentral 34% 25% 62% 64% -20% -10% 45% 21% 21%

salesforce.com 32% 24% 76% 79% -1% 17% 53% 15% 15%

SciQuest 16% 13% 70% 72% 0% 19% 27% 31% 14%

ServiceNow 58% 39% 63% 67% -10% 9% 46% 19% 15%

SPS Commerce 21% 19% 70% 69% 9% 14% 38% 10% 16%

Tangoe 15% 17% 55% 56% 9% 16% 18% 10% 15%

Textura 35% 53% 77% 81% -51% -9% 36% 47% 45%

The Ultimate Software Group 23% 23% 59% 63% 14% 24% 23% 17% 9%

Veeva 44% 25% 61% 64% 19% 25% 20% 13% 10%

Workday 64% 46% 62% 67% -25% -3% 42% 39% 14%

Zendesk 67% 43% 66% 64% -26% -24% 52% 21% 23%

Zix Corporation 7% 15% 84% 84% 22% 21% 2% 20% NM

Median 26% 22% 66% 68% (10%) 2% 39% 20% 17%


(b) Calculated as Equity Value plus total debt, minority interest (at book value unless otherwise noted) and preferred stock, less cash & equivalents

(c) Projections represent Wall Street estimates

(d) Dealertrack Technologies revenue growth rate normalized in 2014E/2013A period to 18% from 70% to account for Dealer.com acquisition closed in March, 2014

Exhibit 2: SaaS Public Company Metrics

Source: Capital IQ Wall Street Estimates, Evercore Equity Research; List includes publicly traded SaaS companies on major US and/or

Canadian stock exchanges as designated by and to the best of AGC’s knowledge


18

Metrics and Correlation with EV / LTM Revenue Correlation

Metric All Large Medium Small

1. 2013A / 2012A Revenue Growth 86% 77% 96% 62%

2. 2014E / 2013A Revenue Growth 87% 86% 92% 64%

3. 2015E / 2014E Revenue Growth 87% 96% 93% 80%

4. Customer Retention Rate* 37% NM 81% 8%

5. 2013A / 2012A EBITDA Growth 7% 76% -24% -3%

6. 2014E / 2013A EBITDA Growth -9% -79% -18% -8%

7. 2015E / 2014E EBITDA Growth 12% 95% -8% 44%

8. 2013A Gross Margin % -55% -88% -83% 11%

9. 2014E Gross Margin % -30% -83% -67% 1%

10. 2013A EBITDA Margin % -70% -99% -93% -14%

11. 2014E EBITDA Margin % -59% -98% -94% -9%

12. 2013A Operating Income Margin % -70% -99% -93% -18%

13. 2014E Operating Income Margin% -56% -99% -93% -4%

14. 2013A Pre-Tax Income Margin % -70% -98% -93% -16%

15. 2014E Pre-Tax Income Margin % -55% -100% -93% -5%

16. 2013A Cash Flow from Operation / Revenue -64% -89% -92% -13%

17. 2014E Cash Flow from Operation / Revenue -47% -82% -93% 13%

18. 2013A EBITDA – Capex / Revenue -72% -98% -93% -27%

19. 2014E EBITDA – Capex / Revenue -62% -100% -94% -16%

20. 2013A Operating Cash Flow - Capex / Revenue -66% -99% -92% -25%

21. 2014E Operating cash flow - Capex / Revenue -52% -99% -94% 5%

22. 2013A R&D Expense / Revenue 68% 93% 92% 25%

23. Capital Raised pre-IPO 30% 73% 62% -27%Based on closing stock prices on September 15, 2014

*Based on recent SEC Filings

Source: SEC Filings, Capital IQ

Exhibit 3: SaaS Public Company Valuation Correlation and Drivers

Definitions: Large - $5B Market Cap, Medium - $1B-$5B Market Cap, Small - <$1B Market Cap


19

Exhibit 4: SaaS Public Company Revenue Growth Rates vs. Valuation Correlation

Data as of September 15, 2014; Excludes Castlight Health and Workday due to outlier multiples (greater than 25x). Dealertrack Technologies revenue growth rate normalized in 2014E/2013A period to 18% from 70% to account for Dealer.com acquisition closed in March, 2014. Source: Capital IQ, Evercore Equity Research

salesforce.com

ServiceNow

Netsuite

athenahealth

The Ultimate Software Group

Veeva

Dealertrack Technologies

Guidewire

Medidata Solutions

Cornerstone OnDemand

Demandware

Zendesk

Proofpoint

RealPage

Marketo

Fleetmatics Group

Paylocity

LogmeIn

Paycom Software

LivePerson

Benefitfocus

RingCentral

OPOWER

SPS Commerce

Qualys

Textura

Constant Contact

Bazaarvoice

2U

IntraLinks

Callidus Software Tangoe

Q2 Holdings

Jive Software

E2open

Amber Road

Channel Advisor

Aerohive Networks

SciQuest

Five9

Marin Software

Halogen Software

Zix Corporation

Brightcove

Covisint

Rally Software

-10%

0%

10%

20%

30%

40%

50%

60%

70%

0.0x 5.0x 10.0x 15.0x 20.0x

20

14

E / 2

01

3A

Re

ve

nu

e G

row

th

EV / 2013A Revenues

2014E / 2013A Revene Growth Rate vs. EV / 2013A Revenue Multiple

salesforce.com

ServiceNow

NetSuite

athenahealth

Proofpoint

Veeva

Dealertrack Technologies

Guidewire

Medidata Solutions

Cornerstone OnDemand

Demandware

Zendesk

The Ultimate Software Group

RealPage

Marketo

Fleetmatics Group

Paylocity

LogmeIn

Paycom Software

Constant Contact

BenefitfocusRingCentral

OPOWER

SPS Commerce

Qualys

Textura

LivePerson

Bazaarvoice

2U

IntraLinks

Callidus Software

Tangoe

Q2 Holdings

Jive Software

SciQuest

Amber Road

Channel Advisor

Aerohive Networks

E2open

Five9Marin Software

Rally Software

Zix Corporation

Brightcove

Covisint

Halogen Software

0%

10%

20%

30%

40%

50%

0.0x 5.0x 10.0x 15.0x 20.0x

20

15

E / 2

01

4E

Re

ve

nu

e G

row

th

EV / 2013A Revenues

2015E / 2014E Revenue Growth Rate vs. EV / 2013A Revenue Multiple

2014E / 2013A Revenue Growth Rate vs. EV / 2013A Revenue Muliple

2015E / 2014E Revenue Growth Rate vs. EV / 2013A Revenue Muliple


20

($US in millions)

Date Target Name Acquirer Name Business Description

Implied

EV

LTM

Revenue

LTM Rev.

Multiple

09/18/14 Concur SAP Provides corporate travel and expense management SaaS $8,300 $668 12.4x

07/31/14 TOA Technologies Oracle Provides predictive mobile workforce management SaaS ~550 ~45 12.2x

07/22/14 Bizo LinkedIn Provides website visitor behavior analytics SaaS 175 40 4.4x

07/21/14 Retail Decisions ACI WorldwideProvides fraud detection and prevention, online payment processing and BI analytics and reporting

SaaS205 51 4.0x

07/14/14 PhlexglobalBridgepoint Development

Capital

Provides trial master file (TMF) records management SaaS for the pharmaceutical and life

sciences industries72 25 2.7x

07/09/14 Neebula Systems ServiceNowProvides business service management (BSM) SaaS to enable monitoring of IT operations and

infrastructure for enterprises100 5 20.0x

07/08/14 eGistics Top Image Systems Provides private cloud-based image, data and document management and archival SaaS 18 11 1.7x

06/10/14 Kontera Amobee Provides online and social media content analytics and data aggregation SaaS 150 26 5.8x

06/10/14 ViryaNet Verisae Provides mobile workforce business process management (BPM) SaaS 19 11 1.7x

05/14/14 LiveRamp Acxiom Provides CRM marketing data integration SaaS 310 25 12.4x

05/06/14 Adometry Google Provides online advertising analytics and customer analytics SaaS 150 20 7.5x

05/06/14 Convertro AOL Provides marketing campaign measurement SaaS 89 11 8.1x

04/28/14 Jaspersoft TIBCO Provides open-source BI reporting and analytics software and SaaS 185 30 6.2x

04/24/14 PayScale Warburg Pincus Provides an online salary and compensation information database for individuals and employers 100 25 4.0x

04/14/14 Reliance Communications WestProvides mass messaging SaaS that enables K-12 education institutions in the US to contact

parents via telephone calls, emails, text messages and social media75 27 2.8x

03/26/14 Fieldglass SAP Provides contingent workforce recruitment and employee management SaaS 1,000 85 11.8x

02/26/14 Identified Workday Provides predective analytics sourcing and recruiting SaaS for busiensses 15 1 15.0x

02/24/14 BlueKai Oracle Provides data management, marketing automation and analytics SaaS 420 63 6.7x

02/24/14 Daxko Pamlico Capital Provides a range of SaaS for NPOs including accounting, CRM, and ERP software 70 35 2.0x

01/22/14 Scout Analytics ServiceSource Provides cloud-based recurring revenue management solutions 33 5 6.0x

01/08/14 PeopleAnswers Infor Provides cloud-based hiring assessments to companies 200 40 5.0x

12/19/13 Dealer.com DealerTrackProvides automotive advertising and advertising enablement software and SaaS for car

dealerships in the US994 224 4.4x

12/12/13 Insightera Marketo Provides inbound and outbound marketing personalization SaaS 20 0 63.5x

12/12/13 Lemon LifeLock Provides online receipt organization and spending management tools 43 3 17.0x

12/02/13 Digital Insight NCR Provides online and mobile online banking for consumers and payment processing SaaS 1,650 330 5.0x

11/13/13 Fiberlink IBM Provides mobile device and application management software and SaaS 300 50 6.0x

10/30/13 Aggregate Knowledge NeuStar Provides marketing intelligence SaaS 119 12 9.9x

10/30/13 ServiceMesh CSCProvides cloud application management, deployment, billing and cloud infrastructure management

SaaS158 40 4.0x

10/17/13 Compendium Oracle Provides multi-channel Web-based content marketing SaaS for businesses 15 2 7.5x

10/07/13 Confio SolarWinds Develops database performance solutions for physical and virtual server environments 103 15 6.7x

10/03/13 Xtify IBMProvides targeted location- and behavior-based mobile messaging SaaS for advertisers and

marketers40 5 8.0x

9/23/13 VINtek DealerTrackProvides electronic vehicle lien and title processing management software and SaaS for lenders,

automotive dealerships and consumers53 16 3.3x

08/30/13 CombineNet SciQuest Provides proposal, bid analysis and procurement SaaS for IT buyers 43 10 4.3x

08/20/13 Alert LogicWelsh, Carson, Anderson

& StoweProvides intrusion detection, vulnerability assessment and security log management SaaS 300 36 8.3x

07/30/13 icon-scm E2openProvides supply chain planning software and software as a service (SaaS) to businesses primarily

in Europe34 10 3.4x

07/09/13 Zyrion Kaseya International Provides IT business service management (BSM) and monitoring SaaS for enterprises 50 7 7.1x

06/27/13 Neolane AdobeProvides a range of marketing SaaS products, including marketing automation, social media

marketing, mobile marketing, customer analytics and campaign management600 70 8.6x

06/04/13 ExactTarget salesforce.com Provides cross-channel digital marketing SaaS solutions 2,539 317 8.0x

05/08/13 Market Leader Trulia Provides lead generation SaaS for the real estate sector in North America 333 45 7.4x

04/29/13 Ingenuity Systems Qiagen Provides genomic bioinformatics SaaS for the life sciences sector 109 20 5.5x

04/22/13 Layer 7 CA Provides API management software, SaaS and systems for businesses globally 155 35 4.4x

04/09/13 Shavlik Technologies LANDeskProvides software patch and configuration management and security assessment software and

SaaS30 30 1.0x

03/11/13 nCircle Tripwire Provides network security vulnerability assessment and analytics software and SaaS 125 38 3.3x

Exhibit 5: SaaS M&A Deals 2009 - September 2014

Data as of September 20, 2014 Source: SEC/Public Filings, Capital IQ, 451 Research


21

($US in millions)


Implied

EV

LTM

Revenue

LTM Rev.

Multiple

02/26/13 Angel.com Genesys Telecomm Labs Offers cloud-based customer experience management (CEM) solutions 111 29 3.8x

02/15/13 FFastFill Pattington Provides electronic trade execution, ordering, clearing and risk management SaaS 124 34 3.7x

02/14/13 Skyfire Labs Opera Software Develops a compression-as-a-service based mobile video optimization platform 147 4 35.9x

01/07/13 Epocrates athenahealthProvides electronic healthcare records (EHR) management and medical bill processing and

practice management SaaS for the medical sector229 111 2.1x

12/20/12 Eloqua Oracle Provides on-demand revenue performance management software solutions for businesses 872 90 9.7x

10/02/12 ClickMotive DealerTrack Develops and delivers interactive marketing software primarily for the automotive industry 62 15 4.2x

09/10/12ThirdForce Group

(MindLeaders)Skillsoft Provides e-learning and employee training SaaS solutions 70 30 2.3x

08/27/12 Kenexa IBM Provides employee recruitment, performance and compensation management SaaS solutions 1,307 318 4.1x

08/16/12 Adeptra Fair IsaacProvides customer service automation and messaging SaaS to enable alerts and messaging

between financial institutions and their customers regarding potential fraudulent transactions115 45 2.6x

08/07/12 Edifice SPS Commerce Provides supply chain point-of-sale analytics and inventory tracking SaaS for retailers and suppliers 37 11 3.3x

07/23/12 RentMineOnline RealPage Provides social media marketing automation SaaS for unit property owners and landlords 15 2 10.3x

06/20/12 Folhamatic Group SageProvides accounting, payroll management, invoice management, billing, and tax preparation SaaS

solutions250 66 3.8x

06/14/12 Bullhorn Vista Equity PartnersProvides enterprise and mobile employee recruitment management and job application tracking

SaaS solutions135 34 4.0x

06/13/12 SinglePlatform Constant Contact Provides marketing automation SaaS solutions 75 2 37.5x

06/06/12 Plex Systems Francisco Partners Provides ERP, SCM, BI and CRM SaaS for the manufacturing sector 160 40 4.0x

06/04/12 Buddy Media salesforce.com Provides salesforce automation and CRM software and platform as a service 745 29 26.0x

05/24/12 PowerReviews Bazaarvoice Provides online community management and moderation SaaS for online retailers 147 12 12.4x

05/23/12 Vitrue Oracle Provides social network content publishing and management SaaS 325 20 16.3x

05/22/12 Ariba SAP Provides SCM SaaS for spend analysis, contract, product procurement, and supplier management 4,411 502 8.8x

04/27/12 Demandforce Intuit Provides marketing automation SaaS 424 37 11.4x

03/23/12 MediConnect Verisk Provides electronic health records (EHR) retrieval, exchange and management SaaS 341 45 7.5x

03/14/12GlobeOp Financial

ServicesSS&C Technologies Provides hedge fund management SaaS solutions 717 221 3.2x

02/28/12 iContact Vocus Provides email and social media marketing SaaS 218 48 4.6x

02/14/12 Smarsh Quest Software Provides email, instant messaging and social media messaging archiving SaaS 56 20 2.8x

02/09/12 Taleo Oracle Provides workforce management SaaS solutions 1,805 315 5.7x

01/30/12 Numara Software BMC Software Provides help desk, IT asset, change and configuration, and patch management SaaS 300 92 3.3x

01/17/12 Convio Blackbaud Provides CRM SaaS for nonprofit organizations 275 80 3.4x

01/16/12 LiveOffice Symantec Provides email archiving SaaS, including eDiscovery and compliance management 115 33 3.5x

01/12/12 Compliance 360 SAI Global Provides governance, risk and compliance management SaaS solutions 42 16 2.6x

12/15/11 Rypple salesforce.com Employee and team goal management SaaS 60 2 30.0x

12/08/11 DemandTec IBM SCM analytics SaaS and related managed services for retail and wholesale sectors 440 88 5.0x

12/06/11 Jobs2web SuccessFactors Provides interactive recruiting and career site optimization solutions 110 15 7.3x

12/03/11 SuccessFactors SAP Employee performance, compensation, and recruitment SaaS 3,357 292 11.5x

12/02/11 Merced Systems NICE Systems Performance management SaaS solution provider 150 56 2.7x

10/24/11 RightNow Technologies OracleCRM SaaS for customer service automation, contact center management and social media

monitoring1,762 216 8.2x

10/03/11 Edvantage Lumesse Managed learning service company provides corporate e-learning solutions 15 10 1.5x

09/22/11 Sage Healthcare Vista Equity PartnersProvides electronic healthcare records (EHR) and medical practice management software and

SaaS for the medical sector320 114 2.8x

09/20/11 Ning Glam Media Provides social website and online community creation and management SaaS 150 20 7.5x

09/19/11 Fizzback NICE Systems Provides customer feedback management SaaS for businesses globally 80 11 7.3x

08/03/11 AdXpose comScore Provides advertisers and agencies with digital advertising analytics SaaS 22 3 7.1x

07/18/11 EchoSign Adobe Provides electronic document signing SaaS 80 8 10.0x

06/21/11 Jobpartners Taleo Workforce management software and SaaS 38 15 2.5x

06/16/11 MediaMind Technologies Digital Generation Provides online video, search, mobile and display ad marketing campaign management SaaS 416 84 5.0x

06/14/11 Twinfield International Wolters Kluwer Provides accounting SaaS for businesses in Europe 50 10 5.0x

04/27/11 Bloodhound Technologies Verisk Provides medical claims adjudication, analysis and processing SaaS for the healthcare sector 82 10 8.2x

Exhibit 5: SaaS M&A Deals 2009 - September 2014 (Continued)

Source: SEC/Public Filings, Capital IQ, 451 Research Data as of September 20, 2014


22

($US in millions)


Implied

EV

LTM

Revenue

LTM Rev.

Multiple

04/26/11 Plateau Systems SuccessFactors Offers SaaS talent management solutions 290 60 4.8x

03/24/11 Mortgagebot Davis + Henderson Provides Web-based mortgage origination software for the financial sector 232 38 6.2x

02/14/11 Vertica Systems HP Provides data warehousing and analytics software and SaaS for businesses 275 25 11.0x

01/31/11 KickApps KIT digital Provides social media widget and application creation SaaS for businesses 45 12 3.7x

01/06/11 Dimdim salesforce.com Provides open-source Web conferencing software and SaaS for businesses 31 2 15.5x

01/05/11 GeoLearning SumTotal Employee training and performance management SaaS 150 39 3.8x

12/22/10 Aprimo Teradata Provides marketing automation software and SaaS for businesses 500 80 6.3x

12/21/10 AECsoft USA SciQuest SRM software for supplier contract management and spend analysis 17 5 3.4x

12/20/10 Enwisen Lawson SaaS provider of HR service delivery and workforce communication software 73 15 4.9x

12/17/10 Netviewer Citrix Provides Web conferencing and collaboration SaaS for businesses in Europe 115 20 5.8x

12/16/10 Cloudkick RackspaceProvides cloud computing-focused virtual server monitoring and management SaaS for

businesses30 1 29.9x

12/07/10 Medicity Aetna Provides patient healthcare information exchange and collaboration software and SaaS 500 30 16.7x

11/29/10 Pharmacy OneSource Wolters Kluwer Provides drug information and pharmacy communications management SaaS 65 15 4.3x

09/27/10 Fieldglass Madison Dearborn Provides intelligent solutions for finding and managing human capital 220 35 6.3x

09/20/10 Softscape SumTotal Provides HCM solutions 50 22 2.3x

09/01/10 Learn.com Taleo Provides employee training management SaaS 125 30 4.2x

08/31/10 TriCipher Vmware Provides single sign-on authentication and identity management software and SaaS 30 5 6.0x

08/13/10 Unica IBM Provides online and email marketing campaign creation and management software and SaaS 480 109 4.4x

08/02/10 MrTed Lumesse Provides SaaS recruitment applications 50 13 3.8x

06/15/10 Coremetrics IBM Provides online marketing campaign analytics and management SaaS for businesses 275 55 5.0x

05/11/10 Medfusion Intuit Provides medical patient self-service and communication SaaS 89 10 8.9x

04/21/10 Jigsaw salesforce.com Provides cloud-based data acquisition and management services accessible via mobile devices 142 18 7.9x

03/08/10 Saf-T-Net Blackboard Provides emergency notification and parent communication SaaS for the K-12 education 38 10 3.9x

02/12/10 SkillSoftBerkshire Partners/Advent

International/Bain CapitalProvides e-learning and employee training SaaS for businesses globally 1,225 316 3.9x

02/04/10 Inform Business Impact SuccessFactors Provides workforce planning and analysis SaaS for businesses globally 41 15 2.7x

01/05/10 Quattro Wireless Apple Provides mobile advertising SaaS that uses SMS/MMS messages and video for businesses 275 ~15 18.3x

10/07/09 Gomez Compuware Provides Web application and Web performance monitoring and analysis SaaS for businesses 286 52 5.5x

09/15/09 Omniture Adobe Provides Web marketing analytics SaaS for businesses 1,728 336 5.2x

09/15/09 Worldwide Compensation Taleo Provides compensation management SaaS for businesses 16 < 1 64.0x

09/14/09 Mint Software Intuit Provides financial management SaaS for consumers globally 170 < 10 17.0x

08/03/09 Etap-On-Line Concur Technologies Provides expense and travel management SaaS for enterprises in Europe 40 10 3.8x

07/22/09 QuickArrow NetSuite Provides project, staff, time, expense and billing management and business analysis SaaS 20 10 2.0x

06/02/09 PayCycle Intuit Provides online payroll processing and check printing SaaS for businesses 170 30 5.7x

Median $135 $26 5.5x

Data as of September 20, 2014

Includes deals with disclosed EV / LTM revenue multiples and enterprise values greater than $15M

Source: SEC/Public Filings, Capital IQ, 451 Research

Source: SEC/Public Filings, Capital IQ, 451 Research

Exhibit 5: SaaS M&A Deals 2009 - September 2014 (Continued)


23

M. Benjamin Howe

Founder, CEO

Investment Banking

In 23 years as an investment banker, Ben has completed more than 300

transactions

Ben began his banking career with First Boston and Smith Barney in NYC doing

M&A in the ’80s and early ’90s

He served as Managing Director, Head of Mergers & Acquisitions and Executive

Committee Member at SG Cowen Securities

Ben moved on to Montgomery Securities and became the Head of Technology

Investment Banking for the East Coast and Europe

He holds a B.A. in Economics from Trinity College and an M.S. in Accounting

from The Stern School of Business at New York University

Dennis Rourke

Partner

Investment Banking

Dennis brings more than 20 years of experience in investment banking to his role

at AGC and has been a Partner with AGC since it was founded in early 2003

Dennis has completed more than 80 transactions, primarily for software

companies

Previously, Dennis was a Managing Director at Banc of America Securities and a

Founding Member of Montgomery Securities’ East Coast Technology Group

He holds a B.A. in English from Middlebury College, an M.A. in German Literature

from the Johannes Gutenberg Universitat in Mainz, Germany, and an M.S. in

Finance from the MIT Sloan School of Management

Fred Joseph

Partner

Investment Banking

Prior to AGC, Fred spent 7 years at Cowen & Co., and held positions at J.P.

Morgan and Smith Barney

Fred was a founding member of Beechtree Capital, a middle market leverage

buyout firm

With more than 115 completed transactions in his 23 years in the industry, Fred

has raised public and private capital for both early stage and late stage

corporations in the technology and healthcare sector

The majority of Fred’s work has been in Mergers & Acquisitions, where,

cumulatively, he has executed in excess of $7 billion in transactions

Fred holds a B.A. from Swarthmore College and an M.B.A. from Columbia

University

Amit Kashyap

Principal

Investment Banking

Amit is a Principal at AGC Partners where he focuses on transaction execution

and origination across the Software and Cloud sectors

Prior to joining AGC Partners, he was an Associate at Houlihan Lokey in New

York

He holds an M.B.A. from the Yale School of Management

AGC Team


24

AGC’s Selected SaaS Experience


25

Note: This document is intended to serve as information only, and to suggest that further analysis and consideration may be warranted. Unless

otherwise indicated, AGC does not believe that the information contained herein is sufficient to serve as the basis of an investment decision.

There can be no assurance that these statements, estimates or forecasts will be attained and actual results may be materially different. Only

those representations or warranties which are made in a definitive purchase agreement will have any legal effect. To learn more about the

company/companies that is/are the subject of this commentary, contact one of persons named herein who can give you additional information.

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