A Wall Street View of the Channel and Channel Partner no … · 2019. 12. 11. · Adoption of cloud computing, managed services and SaaSbased delivery models will continue to gain

“A Wall Street View of The Channel & Channel Partners”The Channel & Channel Partners”

Member FINRA, SIPC 11

“A Wall Street View of The Channel & Channel Partners”

Prepared for HP American Partners Conference 2011

The Channel & Channel Partners”

Presented by:

Martin D. Wolf Founder & President, Martin Wolf Securities

Chairman, MergerTech

Tuesday, March 29, 2011


y, ,Las Vegas, Nevada

Four Key Takeaways

1. Lifestyle business vs. value creation

2. Not GOBOSH, rather, go big or go deep

3 Always look for strategic partnerships3. Always look for strategic partnerships

4. Vendors are sometimes your friend


Four Key Takeaways

MutualSelf Interest

Vendor You


Table of Contents

I. Company Overview

II. M&A Market Overview

III Valuation TrendsIII. Valuation Trends

IV. Industry Trendsy

V. Valuation Drivers

VI. Q&A


Martin Wolf Securities Overview

Vertically FocusedIT S i IT Services IT BPO IT Supply Chain

S i ff d M&A Ad i { l } Services offered: M&A Advisory {only} Completed over 100 IT Transactions Cross-border Transaction Expertise

C C S f Closed transactions across Canada, France, India, South Africa, United Kingdom and the United States

Founded in 1997, headquartered in the San Francisco Bay Area.Member FINRA SIPCMember FINRA, SIPC

Referral Partner of:


MWS Representative Clients


MergerTech Overview

MergerTech is an advisory firm that facilitates mergers and acquisitions opportunities for small to medium sized technology companiesopportunities for small to medium sized technology companies

Client Focus: IT software, solutions and services

Outsourcing & managed service providers Outsourcing & managed service providers Consulting and ERP firms Solution providers and integrators

Internet mobile and digital media Internet, mobile and digital media Defined methodology with deep understanding of M&A process from

start to finish Completed more than 25 transactions Completed more than 25 transactions Expert Bankers: Each banker has 10+ years of experience Buyer knowledge: Worldwide reach to more than 1200 buyers


Selected Transactions

Acq ired b Sold certain assets to Acquired by Logicalis Acquired by Black BoxAcquired byAdvent Global Solutions, Inc.

Sold certain assets toSARCOM, Inc.

Acquired by Logicalis Group

Acquired by Black Box Corporation

Acquired by Sold certain assets toA i d b Mil tAcquired byAcquired by GSS America Infotech Limited

Sold certain assets toePlus, Inc.Acquired by Milestone

Technologies Inc.Acquired by Technology Capital Inc.


Table of Contents

I. Company Overview





VI. Q&A


PRIVATE AND CONFIDENTIAL

Macroeconomic Trends: 2011

Global economy will continue to suffer from a lack of aggregate demand

2011 will be a year of US political gridlock 2011 will be a year of US political gridlock

State and local governments will face continued budget pressures in the face of a moderate recovery as housing prices will not recover in 2011

Unemployment rates will remain high and corporations will continue to focus on improving margins

US recovery from this recession will continue to be less robust than after previous recessions because Americans will continue to reduce debt and focus on building up assets

India and China will continue to see robust economic growth and will be best markets for M&A activity


PRIVATE AND CONFIDENTIAL

Implications for Mid-market IT Businesses

Business investments in computers and related software will continue to grow as businesses continue to focus on improving productivitygrow as businesses continue to focus on improving productivity

Adoption of cloud computing, managed services and SaaS based delivery models will continue to gain momentum

Software is predicted to enter 2011 with strong growth, fueled by the cloud computing buzz (Oracle)

Businesses with state and local governments should look at alternate avenues for generating meaningful growth

St ffi i ill ti t b t th i 2011 Staffing companies will continue to see robust growth in 2011

Organic growth in outsourcing will remain stagnant and M&A activity will increase


Global IT Services, Supply Chain M&A Activities

Dramatic volume rebound from 2009 low2009 low

Transaction value up dramatically over 2009over 2009

Q1 2011 will be strong


Global IT Services, Supply Chain M&A Activities by Geography

North America deal volume at

i l lmaximum levels

North America represents half the world’s M&A activities



Global IT Services, Supply Chain M&A Activities by Size

Q4 2010 undisclosed (small) transaction volume up 30% from a year ago

Q4 2010 less than $100M transaction volume up 24% from a year ago



Table of Contents

I. Company Overview





VI. Q&A


MWS Index®

IT Supply Chain b l M h 2010below March 2010 levels

IT Services and Software are in line

ith N dwith Nasdaq Composite

SaaS grew 100%+ over the last one yearyear

Member FINRA, SIPC 1717As of 3/2/11

MWS Scoreboard

Valuation Summary RevenueRevenueGrowth% GM% EBITDA% Debt / Asset % P/S P/E EV/Revenue EV/EBITDA

IT & IT-ENABLED OUTSOURCED SERVICESHealthcare IT 20.0% 50.7% 20.2% 3.8% 4.15 37.1 4.39 18.7Managed Services 15.9% 48.0% 24.1% 46.1% 3.20 103.7 4.40 12.1Financial IT Services 9 0% 44 2% 26 0% 15 9% 2 06 19 3 2 28 8 9Financial IT Services 9.0% 44.2% 26.0% 15.9% 2.06 19.3 2.28 8.9IT Outsourcing 5.4% 30.5% 13.9% 16.7% 1.27 15.1 1.19 9.0Governmental IT Professional Services 13.4% 24.3% 8.9% 11.3% 0.59 15.5 0.64 7.7Commercial IT Professional Services 7.9% 29.6% 5.7% 0.0% 0.41 26.2 0.46 9.2IT Staff Augmentation 11.8% 25.6% 2.8% 0.7% 0.51 32.0 0.42 12.2

IT SUPPLY CHAIN SERVICESIT Retailers 0 1% 27 4% 5 1% 17 2% 0 20 16 0 0 31 7 0IT Retailers 0.1% 27.4% 5.1% 17.2% 0.20 16.0 0.31 7.0IT Products Distributors 17.2% 10.2% 4.1% 7.6% 0.24 11.1 0.27 7.0IT Resellers -1.5% 21.9% 0.1% 21.8% 0.22 10.7 0.22 10.7IT Direct Marketers 17.2% 13.4% 2.4% 3.6% 0.13 10.2 0.12 4.4

BUSINESS PROCESS OUTSOURCINGBusiness Process Outsourcing - Non-voice 5.4% 35.4% 20.7% 29.4% 1.26 22.6 1.42 9.4Business Process Outsourcing - Voice 0.0% 27.9% 10.8% 5.4% 0.75 18.8 0.58 6.3Business Process Outsourcing Voice 0.0% 27.9% 10.8% 5.4% 0.75 18.8 0.58 6.3

SaaSSaaS 19.3% 69.5% 10.2% 0.1% 6.14 115.7 5.60 38.4


MWS Scoreboard

What you do matters / S S Reseller EV/Rev 0.22x vs. SaaS 5.60x

Vertical specialty matters p y Commercial Professional Services EV/Rev 0.46x

vs. Healthcare IT Services 4.39x

Growth & Profitability matters Reseller Growth 1.5% vs. SaaS19.3%

C i l P f i l S i EBITDA M i Commercial Professional Services EBITDA Margin 5.7% vs. Healthcare IT Services 20.2%


2009-2010 Valuation Differentials

Valuation Mutiple - Enterprise Value/Rev3.50

3.12

2 0

3.00• IT Supply Chain trails IT

Services by 146%

2.00

2.50y %

• IT Services trails SaaS by 388%

1.00

1.50

0.26

0.64

0.50

Member FINRA, SIPC

0.00IT Supply Chain IT Services SaaS

20

Transaction Comparables – IT Supply Chain

Member FINRA, SIPC 21Note: MWS closed transactions highlighted in blue. MWS involved with transactions highlighted in yellow. MergerTech closed transactions highlighted in green.

Transaction Comparables – IT Supply Chain

Member FINRA, SIPC 22Note: MWS closed transactions highlighted in blue. MWS involved with transactions highlighted in yellow. MergerTech closed transactions highlighted in green.

Transaction Comparables – IT Services

Member FINRA, SIPC 23Note: MWS involved with transactions highlighted in yellow. MergerTech closed transactions highlighted in green.

Transaction Comparables – IT Services

Member FINRA, SIPC 24Note: MWS involved with transactions highlighted in yellow.

Transaction Comparables – SaaS

Member FINRA, SIPC 25Note: MWS closed transactions highlighted in blue

Last 10-Year Median Enterprise Value/Revenue

1.20x

IT Supply Chain enterprise

0.99x0.96x

0.80x

1.00x value/revenue declined 57% IT Services declined 42%

0.72x

0.67x 0.62x0.58x

0.63x

0.60x

0.80x

0.27x0.29x

0.32x

0 24x

0.35x0.28x

0.36x0.39x

0.42x

0.40x

0.24x

0.12x 0.14x 0.15x

0.21x

0.00x

0.20x

Dec 2001 Dec 2002 Dec 2003 Dec 2004 Dec 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009 Dec 2010


Dec, 2001 Dec, 2002 Dec, 2003 Dec, 2004 Dec, 2005 Dec, 2006 Dec, 2007 Dec, 2008 Dec, 2009 Dec, 2010

IT Supply Chain IT Services

Last 10-Year Median Enterprise Value/Revenue with SaaS

8.00x

9.00x

SaaS Increased 927%

5 67x

7.65x

6.00x

7.00x

4.34x

5.67x

3 54

5.55x

5.22x5.52x

4.00x

5.00x

2.74x

3.54x

2.00x

3.00x

0.27x 0.23x 0.27x 0.22x 0.09x 0.14x 0.15x

1.20x

0.31x 0.20x 0.25x

0.81x

0.67x 0.93x

0.87x

0.65x 0.63x 0.41x 0.52x 0.42x0.67x

0.54x

0.00x

1.00x

Dec, 2001 Dec, 2002 Dec, 2003 Dec, 2004 Dec, 2005 Dec, 2006 Dec, 2007 Dec, 2008 Dec, 2009 Dec, 2010

IT S l Ch i IT S i S S


IT Supply Chain IT Services SaaS

IT Supply Chain Last Ten Years - Enterprise Value/Revenue

Change of Enterprise Value/Revenue

0.0%Insight PC Connection Pomeroy ePlus

-20.0%

-10.0%

Insight PC Connection Pomeroy ePlus

-40.0%

-30.0%

-57.1%-52.4%

64 2%

-60.0%

-50.0%

-76.9%

-64.2%

-80.0%

-70.0%


-90.0%

IT Services Last Ten Years - Enterprise Value/Revenue


0.0%Unisys CIBER CGI CSC

-10.0%

Unisys CIBER CGI CSC

-30.0%

-20.0%

-42.6%-39.3%

-50.0%

-40.0%

-53.2%

-59.7%-60.0%


-70.0%

SaaS Last Ten Years - Enterprise Value/Revenue


2500.0%

2208.6%

2000.0%

1500.0%

580.6%

500.0%

1000.0%

43.1%0.0%

Salesforce Concur Taleo Ultimate


-50.4%

-500.0%

Guess the Value

Company Revenue (ltm, $M)

Revenue Growth %

(ltm)

Debt / Assets %

Company X 1974.20 25.8 0.7 Your first cluey

Company Y 1071.3 3.2 12.4

Company Z 1,657.1 26.9 16.1

Your first clue

R

Your last Company Revenue

(ltm, $M)

Revenue Growth %

(ltm)

Debt / Assets % Catogory Revenue Mix

Company X 1974.20 25.8 0.7 IT Supply Chain

84.4% - Products Resale 15.6% - Services

Company Y 1071.3 3.2 12.4 IT Services 95.7% - Services 4.3% - Other

clue%

Company Z 1,657.1 26.9 16.1 SaaS 93.5% - Subscription & Support 6.5% - Services & Other


Public Valuation Multiple Comparison


Public Valuation Multiple Comparison

Revenue vs Enterprise Value

18000

$15,770

14000

16000

Shocking difference between revenue & enterprise value

8000

10000

12000

$M

p

4000

6000

$1,974$1,071

$1,657

$180 $453

0

2000


Transaction Valuation Multiple Comparison

Revenue vs Enterprise Value

$459450

500

$315$328350

400

450

$226

200

250

300

$M

$131

$43

100

150

$43

0

50

IT Supply ChainPomeroy Acquired by Platinum

EV/Rev 0 09

IT ServicesDiamond Acquired by PWC

EV/Rev 1 39

Managed ServicesNavisite Acquired by TWC

EV/Rev 2 50

Member FINRA, SIPC

EV/Rev 0.09 EV/Rev 1.39 EV/Rev 2.50

Rev EV

34

Transaction Valuation Multiple Comparison

Category Rev Growth % GM% EBITDA %

Pomeroy IT Supply Chain -24.9 13.6 -0.2

Diamond IT Services 28.2 25.3 9.6

Navisite Managed Services 8.3 50.6 18.5


Table of Contents

I. Company Overview





VI. Q&A


Industry Trends

Growth

Gross Margin Managementg g

Scale Scale

Real Solution Selling Real Solution Selling

Consolidation


Consolidation

Industry Trends

# of Acquisitions Size ($Bn)HP 23 27Oracle 26 10IBM 32 5

N t M 2008 M 2011Note: Mar 2008 - Mar 2011


Industry Trends


Industry Trends

Non-traditional Competitors


Industry Trends


Cross Border


Industry Trends


Cross Border

ASP Declines +

Verticalization

Cloud


Table of Contents

I. Company Overview





VI. Q&A


Valuation Drivers

1. Growth2. Gross Margin3. IP4. Revenue Mix5. Customer6. Niche7. Recurring Revenue8 Si8. Size9. Geography 10 M t


10.Management

Four Key Takeaways

1. Lifestyle business vs. value creation

2. Not GOBOSH, rather, go big or go deep

3 Always look for strategic partnerships3. Always look for strategic partnerships

4. Vendors are sometimes your friend


Q&A


Documents

A Wall Street View of the Channel and Channel Partner no … · 2019. 12. 11. · Adoption of cloud computing, managed services and SaaSbased delivery models will continue to gain