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The BGL Business Services Insider is published by Brown Gibbons Lang & Company, a leading independent investment bank

serving middle market companies throughout the U.S. and internationally.

Spotlight On:FinTech

Technology continues to be a major disruptive force in virtually

all areas within financial services, as mobile applications become

mainstream and new banking solutions become available to an

increasingly global, distributed population. FinTech is gaining

significant momentum as innovative companies reinvent

processes and traditional financial institutions actively explore

partnerships and invest in their own ventures.

Investment activity is continuing to grow, with venture and private

equity capital flowing into the FinTech market. In our feature

perspective, investors provide insight into developing trends and

the evolving regulatory and competitive landscape, valuations,

and areas of future investing.

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2

FinTech

Spotlight On:

FinTech is a market where technological innovation intersects with financial products and services, transforming the

way consumers and institutions manage their funds and accounts. New entrants and startups are innovating new

processes, and traditional financial services companies are exploring new methods to continue delivering long-standing

products. In response to growing customer demand and the emergence of user-friendly technology, FinTech has been

gaining significant momentum and is expected to be an even greater force in the coming years.

Verticals

Commercial Banking

Technological advancements have made banking

transactions relatively fast and easy. Commercial banks

are implementing their own technology or partnering

with FinTech companies to apply these new tools in their

traditional service offerings. Many of the larger banks have

been closing branches as customers increasingly look

to conduct their transactions online or through mobile

devices.

Commercial banks are actively exploring partnerships and

investing in their own FinTech ventures, with a number of

initiatives announced in recent months. Small businesses

and consumers are in focus, highlighted by such pairings

as Royal Bank of Scotland with UK financial technology

startups Funding Circle and Assetz Capital; Canadian bank

CIBC with Thinking Capital, ING Bank with Kabbage, and

bellwether JPMorgan Chase with OnDeck Capital.

Funding Circle co-founder Sam Hodges, in a Bloomberg

interview, pointed to a broader shift taking place within

the financial services industry: “Banks recognize that they

are very good at certain things—accumulating deposits,

delivering very high-touch relationships particularly in

structured lending—but … for smaller-ticket loans, there

are service providers such as Funding Circle which are

much better positioned to deliver a high-quality customer

experience.”

In October 2015, ING Bank acquired an equity stake in U.S.-

based FinTech company Kabbage, a move to expand its

lending capabilities to small and medium-sized enterprises

(SMEs). The investment was part of a $135 million

Series E financing round, in which the bank participated

alongside investors Reverence Capital Partners, Santander

InnoVentures, Malaysia Venture Capital Management, and

Scotiabank Global Banking and Markets. Kabbage also

FinTech is a Threat

Share of Business Threatened by FinTechs

How are You Currently Dealing with FinTech Companies?

28%

24%23%

22%21%

Fund Transfer andPayment

Institutions

Banks Average Asset/WealthManagement

Firms

Insurers

9%

11%

14%

25%

32%

Acquire FinTech companies

Launch own FinTech companies

Set up venture funds to fund FinTech services

Do not deal with FinTech

Engage in joint partnerships with FinTech firms

Source: BI Intelligence from PwC Global FinTech Survey 2016.

In its 2016 Global FinTech Survey, PwC polled financial services executives to examine how FinTech is reshaping banking. The survey population encompassed 544 respondents from 46 countries, including Chief Executive Officers, Heads of Innovation, Chief Information Officers, and top management involved in digital and technological transformation. Banking-focus findings were tabulated based on responses from banks worldwide.

SOURCE: S&P Capital IQ, PitchBook, Equity Research; Company Filings, and public data.

https://www.assetzcapital.co.uk/

http://business.financialpost.com/news/fp-street/cibc-forges-fintech-partnership-that-will-offer-faster-loans-to-compete-with-online-lenders


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FinTech

Spotlight On:

counts Mohr Davidow, UPS Strategic Enterprise Fund, TPG,

and Thomvest Ventures among its early investors. Kabbage

has loaned more than $1.5 billion to consumers and SMEs

since its launch in 2009, according to CrowdFund Insider,

and has raised over $300 million in funding to date, pegging

the company’s pre-money valuation at nearly $1 billion.

The largest U.S. bank by deposits, JPMorgan Chase,

announced in December 2015 it was teaming up with

OnDeck Capital, a partnership intended to ramp up

lending to its 4 million small-business customers. “It is

not a question of friend or foe,” said Jenn Piepszak, chief

executive for business banking at Chase, speaking to

Financial Times about the growing competitive threat

posed by FinTech players such as OnDeck. “We clearly

bring scale and customer acquisition to the table; what

they offer is a disruptive customer experience that is very

complementary with our existing services.”

In the company’s 2015 Annual Report, OnDeck CEO Noah

Breslow highlighted the industry’s potential through the

company’s growth trajectory in loan originations: “It took

OnDeck 80 months (6 years and 8 months) to reach

$1 billion in loans, 10 months to reach $2 billion in loans, 7

months to reach $3 billion in loans, and only 5 months to

reach $4 billion in loans.”

Traditional lenders are at a crossroads, faced with the

decision to buy, build, or partner, said CommonBond CEO

David Klein, in a Financial Times interview. “The Chase/

OnDeck partnership is evidence that online lending really is

moving from the margins to the mainstream,” Klein said.

Goldman Sachs launched Marcus, its new online consumer

lending venture, this October, a move aligned with its core

strategy to “create a valuable and differentiated service”

for its clients. Former Discover executive Harit Talwar is

leading the new platform. “Marcus’ goal is to enter the

consumer credit market and provide a product that is

simple, transparent, flexible, and provides consumers with

real value,” said Goldman CFO Harvey Schwartz in the

company’s 3Q16 earnings call.

In February 2016, SunTrust announced it was launching

a new Payments & Technology Industry Specialty

within Commercial and Business Banking. Eric Brewer,

who currently heads Treasury and Payment Solutions

at SunTrust, will oversee the new venture. “In banking

today, you’re either a disruptor or you’re being disrupted.

Consumers and businesses alike are leveraging the power

of FinTech, and SunTrust aims to be a strategic advisor

to clients pioneering and investing in payments and

technology,” said Beau Cummins, Commercial and Business

Banking executive at SunTrust, in a company press release.

“This is a time unlike any other for the payments and

lending industry. Startups and established leaders will need

strategic financial advisors to meet their growth goals

and plan for the unexpected—like regulatory and global

challenges,” Brewer said, in the release.

Wealth Management

Traditionally, retail investors work with an advisor for their

financial management, retirement, and estate planning

needs. The market is beginning to shift as investors move

their funds to online platforms that use algorithms and

automated services to develop financial plans and allocate

investments. Startups such as Wealthfront, Betterment,

and Motif Investing are gaining traction and now have

accumulated billions of dollars of assets under management

(AUM).

The robo-advisory market is in its early stages and

is expected to see exponential growth, predicts A.T.

Kearney, which estimates that robo-advisors will become

mainstream among U.S. consumers within three to five

years. A 2015 Robo-Advisory Services Study of more than

4,000 U.S. adult banking customers revealed a high level of

interest in and likelihood to adopt robo-advisory services:

Nearly half (48 percent) of all respondents expressed

interest in and 69 percent were likely to adopt robo-

advisory services. By 2020, an estimated $2 trillion will be

managed under robo-advisors in the U.S. alone, according

to A.T. Kearney forecasts.

Launched in 2008, Wealthfront has grown AUM from

$100 million in its first year to $4 billion in 2016, reported

TechCrunch. The company has raised nearly $130 million

in venture funding to date and counts Benchmark Capital,

DAG Ventures, Index Ventures, and The Social+Capital

Partnership among its investor base. Co-founder Andy

Rachleff assumed the role of CEO this October, said

TechCrunch. Rachleff is a co-founder of Silicon Valley

venture firm Benchmark Capital.



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FinTech

Spotlight On:

Betterment has $6 billion in AUM according to

TechCrunch estimates, attracting more than $200 million

in capital to date from a growing list of investors that

includes Kinnevik, Bessemer Venture Partners, Anthemis

Group, Menlo Ventures, and Francisco Partners, among

others.

Motif Investing is backed by a growing list of titan

investors in the financial services space, among them

Goldman Sachs, Ignition Partners, Norwest Venture

Partners, and Foundation Capital, raising more than

$125 million since its inception in 2010.

Traditional wealth managers are bringing their own

automated advisory services to market, such as Charles

Schwab which introduced Schwab Intelligent Portfolios,

and Vanguard, which launched Vanguard Personal

Services, in 2015. UBS and Santander have invested in

SigFig.

Insurance

InsurTech incubators and startups are forming to address

customer demand for personalized insurance products

and instant coverage. Given the volume of data, stringent

regulations, and capital analysis requirements within the

insurance industry, the larger insurance companies may

be slow to adopt these technologies. Startups are slowly

beginning to fill the void, necessitating partnerships

and collaboration. Oscar and Lemonade are just two

examples of such startups that are looking to disrupt the

insurance industry.

Findings from PwC’s July 2016 Global FinTech Survey

underscored an industry on the cusp of disruption.

Survey findings revealed that 74 percent of industry

insiders view insurance to be one of the industries

most disrupted by FinTech in the coming five years.

Additionally, nine in ten insurance executives, identified

as the greatest percentage out of the financial sector,

believe that at least part of their business is at risk to

FinTech. According to the report, annual investments in

InsurTech start-ups increased fivefold over the past three

years, with cumulative funding reaching $3.4 billion since

2010. According to CB Insights, InsurTech startups raised

$2.65 billion in 2015 alone, an increase of 3.5x from a year

ago, of which U.S.-based startups accounted for just over

half of funding.

Robo-Advisor Growth Outpacing Incumbents

Time to $1 Billion in Assets Under Management (AUM)

Robo-Advisory Services Adoption

years

1 2

1 2 3 4 5 6

years

Source: BI Intelligence from CB Insights

Source: A.T. Kearney

$0.3$0.5

$0.9

$1.5

$2.2

0.9%

1.7%

2.7%

4.1%

5.6%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

2016E 2017E 2018E 2019E 2020E

Forecast of Robo-Advisory ServicesAdoption Rate

Esti

mat

ed U

.S. R

obo-

Adiv

sors

As

sets

Und

er M

anag

emen

t ($

in tr

illio

ns)

Assets Under Management Adoption Rate

Digital health insurance startup Oscar Health was launched

in 2013 with the mission to “utilize technology, data, and

design to humanize healthcare.” Fidelity Investments

led a $400 million investment in Oscar this February,

valuing the company at $2.7 billion—increasing from a

$1.7 billion valuation in a September 2015 round. Google

Capital, General Catalyst, Founders Fund, Lakestar, Khosla

Ventures, and Thrive Capital were among other investors

also participating in the round. To date, Oscar has raised

more than $730 million. “We are going after one of

the largest markets in the United States, one that is 20

percent of GDP,” said Oscar co-founder Josh Kushner in a SOURCE: S&P Capital IQ, PitchBook, Equity Research; Company Filings, and public data.

http://www.efinancialnews.com/story/2016-06-01/q-and-a-ubs-sigfig

http://www.efinancialnews.com/story/2016-06-01/q-and-a-ubs-sigfig


5

FinTech

Spotlight On:

Forbes interview. “We have the capital, the brand, and the

technology to have tremendous impact on the industry.”

In just the last year, Oscar more than tripled its customers

(145,000 from 40,000) and now offers plans in four states:

New York, California, New Jersey, and Texas, reported

Forbes. “The types of data that we’re getting from our

users have really made us realize that people actually want

to interact with their health insurer. Our ambitions over

time are to continue to innovate to create new products

that hopefully raise the standard in the industry,” Kushner

told TechCrunch in an interview at the 2014 Rock Health

Digital Health CEO Summit. “The bar is pretty low. Health

insurance companies today do everything they can to

acquire customers but after that everything they can to

avoid them. Our goal is to create the consumer experience

that we would want for ourselves.”

The insurance industry has underinvested in technology

innovation, and high profits have made large insurers slow

to change, Kushner indicated. “They haven’t cared about

the consumer today primarily because they haven’t had

to…because the way that health insurance has been sold

in the U.S. to date has primarily focused on corporations

as opposed to individuals. And that is changing through

the Affordable Care Act, where for the first time ever, 50

million Americans are buying insurance [for the first time].”

When asked about the possibility of other startups or

individuals replicating Oscar’s model, Kushner offered,

“We really hope that people do copy us, because that will

raise the standard of care in the entire country. The U.S.

healthcare system is a disaster, and we need people to

innovate. We are just doing our part.”

Online peer-to-peer (P2P) property and casualty insurance

carrier Lemonade launched in 2015 with $13 million in seed

funding from Sequoia Capital—one of the largest seed

investments in the firm’s history, according to TechCrunch.

The company is following in the paths of other P2P carriers

like London-based auto insurance provider Guevara and

Friendsurance, a Berlin-based personal and casualty

insurance carrier, said TechCrunch, looking to disrupt the

U.S. market.

Lemonade co-founder Daniel Schreiber, said: “We are

building an insurance company fully vertically integrated

from the ground up to rethink some of the building blocks

of the industry,” reported TechCrunch. “It is very unusual

for a company to receive $13 million in an initial round of

funding,” said Haim Sadger, partner at Sequoia Capital in

a TechCrunch interview. “But it is rarer still to find such

accomplished founders tackling such a sizable industry.

We’re betting Lemonade will transform the insurance

landscape beyond recognition. It is one to watch.”

Consumer Lending

Numerous consumer lending startups are leveraging

electronic data to perform instant risk analysis and evaluate

creditworthiness. As more enter the marketplace, it will likely

erode the profitability of this segment for the major banks as

online lenders can more quickly and cost-effectively process

loans. Players such as Prosper and LendUp are among the

online startups looking to capture share of the $3.5 trillion

consumer lending market.

Prosper is a pioneer in the peer-to-peer lending marketplace,

bringing in former Wells Fargo executives Stephan and

Aaron Vermut to the helm in 2013, according toTechCrunch.

In its latest Series D funding round in April 2015, the

company raised $165 million from lead investor Credit Suisse,

putting the company’s pre-money valuation at $1.7 billion.

Founded in 2012, LendUp is a direct online lender that

provides small-dollar loans to consumers as an opportunity

to build credit and move up the financial ladder. In July

2016, the company raised $47.5 million of Series C venture

funding, putting the company’s pre-money valuation at

$452.5 million. Y Combinator led the financing round with

participation by GV, Thomvest Ventures, QED Investors,

Data Collective, Susa Ventures, Radicle Impact, Bronze

Investments, SV Angel, and other undisclosed individual

investors. LendUp stated plans to use the funding to expand

its subprime credit card business, reported the Wall Street

Journal.

Mortgages

The mortgage industry, while still dominated by large

banks and traditional financial institutions, is becoming

more digitalized as consumers look to obtain quick and

less complex home loans. While Quicken Loans has been in

operation for decades, it recently unveiled RocketLoans,

which offers simple, fast online loans. Startup SoFi is a

rapidly-growing finance company that has loaned more

than $12 billion to date.SOURCE: S&P Capital IQ, PitchBook, Equity Research; Company Filings, and public data.

https://heyguevara.com/

http://www.friendsurance.com/


6

FinTech

Spotlight On:

Since its inception in 2011, SoFi has broadened its offerings

from student loan refinancings to include personal loans

and mortgages, and is reportedly interested in providing

wealth management services, according to CEO Mike

Cagney. The company raised $1 billion in Series F funding

in September 2015—the largest FinTech deal that year—

putting the company’s pre-money valuation at $2.6 billion.

SoftBank Capital led the round, identifying SoFi as a “game

changer in the financial technology space.” “We’re trying to

build something really big, really meaningful,” Cagney said

in a Bloomberg interview. “SoftBank is telling us, ‘Swing for

the fence’.”

Payments

Along with heavyweights PayPal and Venmo, startups such

as Stripe and WePay are developing easy-to-use online

and mobile payment transaction processes for customers,

marketplaces, and crowd-funding sites.

Founded in 2010, digital payments company Stripe has

raised over $400 million in funding to date, including

$150 million secured this November, putting its pre-money

valuation at $9.0 billion—nearly doubling from a July 2015

round. Leading the round were CapitalG and General

Catalyst Partners, an early investor in the company. Other

existing investors such as Sequoia Capital also participated.

Sumitomo Mitsui Card Company (October 2016

investment), Visa (June 2015 investment), and American

Express (July 2015) are also investors.

Stripe is looking to rival PayPal, partnering with large

companies like American Express, Ant Financial (Alipay),

and Apple (Apple Pay) to process payments. The company

expanded into Japan, France, Singapore, and Spain in 2016

and has completed three acquisitions, reported the Wall

Street Journal. “Partly through design and partly through

circumstance, Stripe has a spectacular market opportunity

at its doorstep,” said Sequoia Capital’s Michael Moritz, in an

interview with Fortune. “Stripe is at the triple intersection of

mobile payments, cross border commerce, and outsourcing

payments for medium and large companies.”

Stripe’s partnership with Visa, announced in June 2015, was

a move to further its international expansion efforts, with

Visa to help Stripe process payments in countries outside

DEVELOPING TRENDS IN FINTECH

MOBILE

AUTOMATION

The financial sector is tightly regulated to protect customer interests. With growing public awareness of alternative finance options such as peer-to-peer (P2P) lending and equity crowdfunding, governments are revising regulations to allow more investors to participate in these types of markets. As regulations continue to adapt to new technologies, more FinTech solutions will come online and be accessible to the greater marketplace.

REGULATION

Just as mobile banking and payment technologies are experiencing exponential growth, security and data management are growing to keep pace with these innovative products that require security technology to perform properly for customer protection.

SECURITYMANAGEMENT

Major banks and startups around the world are exploring the technology behind the blockchain, which stores and records online currency transactions. This technology has the potential to significantly lower the cost of financial transactions and be disruptive to many financial processes. Additionally, blockchain technology will provide greater accountability, helping to establish trust and increase adoption in the financial services sector.

BLOCKCHAIN

Mobile applications are becoming mainstream and affecting every area within financial services. New banking solutions and wealth management models are coming online, and new methods of transferring money are becoming available to an increasingly global, distributed population.

Mobile solutions are making digital banking and e-commerce more accessible, personalized, and simpler to use. Customers are demanding instant connectivity making it possible to interact, trade, or exchange information anytime and anywhere. In particular, tech-savvy millennials increasingly are processing financial transactions—from paying their monthly mortgage to buying shares of stock—using mobile applications. While not as widespread as desktop transactions in retail banking, mobile is expected to see rapidly increasing adoption in the coming years.

Automation is having a major impact in virtually all areas within financial services, including portfolio allocation, risk management, customer care, marketing communication, mortgage origination, bill payments, and student loans, among others.

Robo-advisors are now modeling in-depth and complex portfolios for wealth management and are making every part of the process more efficient—from speed of execution and scanning software to trade management programs and fully automated black box trading systems.



7

FinTech

Spotlight On:

the United States, reported Fortune. Visa was attracted

to Stripe’s popularity with developers and ease of use.

Visa invested in online payments company Square in 2011,

reported Fortune.

Traditional commercial banks are also partnering with

startups or developing their own in-house payments

technologies. A consortium of money center banks, among

them Citigroup, Wells Fargo, JPMorgan Chase, Bank

of America, and U.S. Bancorp, are collaborating in the

development of a peer-to-peer payments app to face off

with PayPal, Square, and other FinTech startups. The “Zelle”

smartphone app is expected to launch in 2017, according to

the Wall Street Journal.

Capital Markets ActivityInvestment activity in the FinTech sector is continuing to

grow, with venture and private equity capital flowing into

the market. Venture funding reached a decade-high in

2015 with more than $12 billion in capital invested. Over

$41 billion in venture capital has been invested since 2005.

Oscar Health (Insurance, $400 million Series C), Clover

Health (Insurance, $165 million Series C), LendUp (Lending,

$150 million Series B), Betterment (Wealth Management,

$100 million Series E), and Affirm (Lending, $100 million

Series D) were among the largest U.S. FinTech deals in

1H 2016. According to PitchBook, private equity investment

activity in the FinTech sector also reached a decade-high

last year, with sponsors closing a record 102 deals.

M&A activity continues to remain robust. Selected

transaction activity:

In September 2016, Broadridge Financial Solutions,

Inc. (NYSE:BR) acquired Inveshare for $135 million.

Consideration consisted of $95 million upfront and

$40 million in deferred payments upon delivery of the

blockchain applications. In connection with the transaction,

Broadridge has entered into a development agreement

to use these technology assets to develop blockchain

applications for Broadridge’s proxy business. The

acquisition is expected to accelerate Broadridge’s ability

to adapt distributed ledger technology capabilities to its

proxy services.

Commenting on the transaction, Broadridge CEO Richard

Daly said: “Integrating blockchain technology into the

proxy process has the potential to drive significant

benefits for all participants, including institutional and retail

investors, corporate issuers, mutual funds, regulators, and

brokers by reducing complexity, increasing security and

raising transparency.” He continued, “Broadridge plays a

critical role as a leader in proxy communications services.

We are committed to staying at the forefront and bringing

to market innovative new technologies and products that

enhance corporate governance and reduce costs for all

participants.”

Capital is Flowing into FinTech

Historical Venture Capital Investment Activity Historical Private Equity Investment Activity

Source: PitchBook.

$13.7

102

$0.0

$10.0

$20.0

$30.0

$40.0

$50.0

$60.0

0

20

40

60

80

100

120

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*

Capital Invested ($ in billions)

Num

ber

of T

rans

acti

ons

Total Capital Invested Deal Count

$12.1

1,225

$0.0

$2.0

$4.0

$6.0

$8.0

$10.0

$12.0

$14.0

0

200

400

600

800

1,000

1,200

1,400

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*

Capital Invested ($ in billions)

Num

ber

of T

rans

acti

ons

Total Capital Invested Deal Count

*YTD activity through 9/30/16.


http://techcrunch.com/2011/04/27/visa-makes-a-strategic-investment-in-disruptive-mobile-payments-startup-square/


8

FinTech

Spotlight On:

In June 2016, digital payments startup Circle Internet

Financial raised $60 million in Series D venture funding

putting the company’s pre-money valuation at

$420 million. IDG Capital Partners led the financing

round, with former IBM CEO Sam Palmisano, China’s

Baidu (NasdaqGS: BIDU), Breyer Capital, Accel Partners,

and General Catalyst Partners among the participating

investors, reported the Boston Business Journal.

Circle’s mobile app utilizes blockchain technology allowing

users to process payments. The company has reportedly

tripled its customer base in the past year and is on track

to exceed $1 billion in annual transaction volume, reported

the Boston Business Journal. China is a major focus as

Circle looks to globalize its services, according to Quan

Zhou, managing director of IDG Capital Partners, reported

CoinDesk. Circle China was formed in December 2015 to

target the region.

Goldman Sachs and IDG Capital co-led a $50 million Series

C funding round in April 2015. Tom Jessop, Managing

Director at Goldman Sachs’ Principal Strategic Investments

Group, said the bank recognizes the need to invest in

companies that “have the promise to transform global

markets through technical innovation”, in a Circle blog post.

Circle co-founders Jeremy Allaire and Sean Neville

commented on the fund raise in a blog post: “These

strategic partners are betting on Circle’s goal of creating

an open, global model for social payments that enables

consumers in China, the U.S., and Europe to exchange

value the same way we share content and communicate.”

Founded in 2013, Circle has raised $136 million to date.

In September 2016, Allianz Ventures, the venture arm

of Allianz Global Investors, acquired a minority stake in

MoneyFarm for $7 million. MoneyFarm estimates it is one

of the two largest robo-advisors in Europe. Solmaz Altin,

Chief Digital Officer of Allianz, said in a statement: “The

combination of online and offline advisory has become a

key trend in the wealth management space enabled by

technology. Digital wealth management is one area Allianz

has singled out as particularly transformative for the

financial services industry.” MoneyFarm intends to

use the funding to accelerate its growth in the UK and

Europe, reported FT Advisor.

The deal follows a recent flurry of acquisitions in the digital

wealth management market, with acquisitions announced

by Invesco (NYSE:IVZ) (Jemstep, January 2016),

BlackRock (NYSE: BLK) (FutureAdvisor, October 2015),

Fidelity Investments (eMoney Advisor, March 2015), and

Northwestern Mutual Insurance (LearnVest, March 2015).

FutureAdvisor was reportedly valued at more than

$150 million, with industry sources estimating AUM at

$600 million. “As demand for digital wealth management

grows, we believe that our combined offering will accelerate

our partner firms’ abilities to serve the mass affluent in a

convenient, scalable way,” said Tom Fortin, Head of Retail

Technology for BlackRock, in a company press release.

Fidelity paid more than $250 million for eMoney Advisor, a

valuation that is estimated to be more than four times the

company’s revenues. The acquisition accelerates Fidelity’s

larger vision to continue enhancing its digital solutions

across its retail, workplace, and institutional channels,

according to a company statement. “Fidelity is a financial

services firm with technology at its core. We apply design-

thinking in our labs, incubate new companies, and work

with some of the brightest minds in the country—all for

the benefit of our clients,” said Michael Wilens, president,

Fidelity Enterprise Services, in a company press release.

“eMoney Advisor is another important vehicle through

which Fidelity can exceed client expectations and maintain

its edge in a rapidly changing technology environment.”

Leading robo-advisor LearnVest was reportedly valued

at more than $250 million. Discussing the rationale for

Northwestern Mutual’s acquisition, LearnVest co-founder

John Gardner told participants at the 2016 OnRamp

Insurance Conference: “Northwestern Mutual wanted to be

at the center of their clients’ financial lives. At LearnVest,

we thought we could help develop a platform to make

Northwestern Mutual agents the most trusted advisor in

the eye of their clients,” reported Jeff Buchanan, editor

at Xconomy and an attendee at the conference. Veteran

Northwestern Mutual has longevity with its 159-year

history but acknowledges the reality that organizations

“must anticipate disruptive technological and generational

changes,” said conference speaker and chief technology

officer Karl Gouverneur, noted Xconomy’s Buchanan, who

said Gouverneur posed the question to the group: “Are my

kids going to buy life insurance from a person? I

don’t think so. I think my son will be allergic to that type

of interaction.” Buchanan reported that Northwestern

Mutual’s private equity arm led a $28 million investment in

LearnVest in April 2014.



9

Spotlight On:

FinTech

FinTech continues to be a major disruptive force across all of the major financial services verticals with significant

untapped growth; however, investors are becoming more rational and disciplined on valuations. Capital inflows

contributed to rising valuations in a market that industry sources say was becoming overheated. Concerns of increased

competition and tightening regulation have also had a dampening effect on valuations.

Online Lending

Index Performance

Relative Valuation Trends

Payments

Index Performance


Enterprise Value/EBITDA Enterprise Value/RevenueMarket Cap/Total LTM Revenue Price/Book Value

NM

21.2x

12.8x

Square PayPal Yirendai

2.5x

4.0x3.5x

Square PayPal Yirendai

Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Dec-16

Market Cap/LTM TotalRevenue 10.7x 8.0x 5.2x 2.6x 3.6x 3.0x

Price/Book Value 3.6x 3.2x 2.4x 1.4x 1.9x 1.6x

0.0x

1.0x

2.0x

3.0x

4.0x

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

1.9x

4.8x

OnDeck LendingClub

Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Dec-16

EV/EBITDA 18.3x 15.7x 15.5x 13.3x 16.4x 17.0x

EV/Revenue 3.9x 4.1x 3.7x 2.4x 3.7x 3.5x

0.0x

1.0x

2.0x

3.0x

4.0x

5.0x

0.0x

5.0x

10.0x

15.0x

20.0x

1.1x

2.1x

OnDeck LendingClub

11.0%

5.4%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

Dec-15 Feb-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16

BGL Payments Composite S&P 500

-58.1%

5.4%

-80.0%

-60.0%

-40.0%

-20.0%

0.0%

20.0%

Dec 15 Feb-16 Mar 16 May-16 Jul-16 Sep-16 Nov-16

BGL Lending Composite S&P 500

Source: S&P Capital IQ.As of 12/2/2016.

Sector Performance


10

FinTech

Spotlight On:

PAYMENTS

INSURANCE

WEALTHMANAGEMENT

COMMERCIALBANKS

LENDING

The Evolving FinTech Landscape


11


In this spotlight, we have assembled equity investors in the new technology environment of financial services to gain

perspective on developing trends and the evolving regulatory and competitive landscape, valuations, and areas of

future investment activity.

Q What are some of the primary trends you see in the

FinTech industry?

Fenton, Serent Capital. We tend to invest in more mature businesses: $10 million-plus in revenues, boot-strapped (i.e., no venture capital/outside investors), and sustainable growth rates (20 to 50 percent). Across the parts of FinTech that we cover, the ubiquitous trends are seemingly the obvious ones: (i) long term shift of consumers to online and mobile, creating opportunity for software vendors serving these markets (i.e., the arms dealers helping traditional financial services companies move online/mobile); (ii) the migration of software services into the cloud, (iii) an increasingly integrated ecosystem, underscoring importance of providing connected services via open APIs, and (iv) a rapidly evolving and complex regulatory landscape. We expect the first three trends to persist for the next several years; however, with the change in administration, it is unclear what will happen to the CFPB and the regulatory environment. In general, a looser regulatory environment may

improve the environment for lenders by lowering the burdensome cost of compliance, but it may also negatively impact the value proposition of certain technology and service providers.

Goldenberg, LLR Partners. Increased availability and speed of delivery of financial services to the broader population. From mobile payments to online lenders and wealth management tools to new methods of transferring money in an increasingly global population, FinTech today enables a much larger percentage of the population to access financial services.

Dating back to one of our early investments in Heartland Payment Systems and our more recent investment in Phreesia, one of LLR’s core areas of focus is the payments space, where we are seeing a trend towards integrated service providers, i.e. the combination of software, analytics, lending, CRM, AR/AP management, etc. and payments to provide a comprehensive business solution to merchants.

WHAT ARE SOME OF THE PRIMARY TRENDS IN THE FINTECH INDUSTRY?

We continue to see the large global banks as digital laggards, which is creating opportunities for agile companies to provide valuable services to both consumers and industry verticals. - Amir Goldman

FINTECH INVESTOR PERSPECTIVE

Susquehanna Growth Equity is the growth equity investment arm of Susquehanna International Group (SIG). The firm makes minority and control investments and counts among its financial technology holdings online lenders Credit Karma and Fundera and digital payments companies Payoneer and PaySimple.

Amir Goldman founded Susquehanna Growth Equity in 2006 with the owners of SIG.

LLR Partners is a private equity firm making minority and majority investments in growth stage software and tech-enabled services companies. It’s FinTech portfolio includes physician payments provider Phreesia and digital transaction management provider eOriginal. Past investments include payments processor Heartland Payment Systems and fuel charge card services provider FleetOne.

Ryan Goldenberg is a Vice President at LLR Partners.

FinTech

Spotlight On:

Serent Capital is a private equity firm that makes majority and minority investments in growing service businesses. FinTech is an area of specialization with MercuryNetwork and Docutech among its related holdings.

Lance Fenton is a Partner at Serent Capital.


12

FinTech

Spotlight On:

AT WHAT VALUATION MULTIPLES ARE YOU SEEING TRANSACTIONS?

We don’t see a bubble in our part of the market. As long as interest rates remain reasonably low, leverage remains available, and there is steady demand for FinTech assets from cash-rich strategics and private equity firms, we think valuations are likely to persist in the near-term for high recurrence SaaS businesses that are growing at 20 to 30 percent-plus. - Lance Fenton

Lastly, LLR’s most recent FinTech investment, eOriginal, provides post-settlement digital transaction management, which is benefitting from significant tailwinds as originators, lenders, investors. and custodians are increasingly digitizing the broader lending process.

Goldman, Susquehanna Growth Equity. We continue to see the large global banks as digital laggards, which is creating opportunities for agile companies to provide valuable services to both consumers and industry verticals. We are very bullish on global ecommerce which is transacting on marketplaces such as Airbnb, Wish, Amazon, Flipkart, Mercado Libre, and Lazada. All of these vendors need to figure out how to accept global payments and pay out their merchants – thus our investment in Payoneer. We see the SMB world slowly adopting electronic payments – thus PaySimple – and we think there are myriad services that can be offered to these merchants. We continue to think the move to online lending for both consumers (CreditKarma) and small businesses (Fundera) will create a lot of opportunities. There have and will continue to be hiccups as tech entrepreneurs learn to understand underwriting criteria and risk (see Lending Club), but we are confident that this is a trend that will continue for a long time. Asset management and the ongoing march to low-fees, index investing, and automated portfolio management is creating a bunch of new companies that can better service consumers than traditional brokerage firms. And the utter ubiquity of smartphones and untethered consumers will continue to force innovation throughout the financial services stack.

Q There has been a significant amount of venture and

private equity capital flowing into FinTech. At what

valuation multiples are you seeing transactions? Are we

going through a potential bubble, and at what point may it

burst?

Fenton, Serent Capital. It is hard to opine on valuation at such a high level, as it depends on a variety of factors (size of addressable market, growth, profitability, and revenue recurrence, to name a few). We focus on a niche far-removed from the large-scale FinTech

capital raises for companies like Affirm and Zuora, who have raised hundreds of millions of dollars at very high valuations, driven by the large markets they serve and high growth rates they project. I’ll limit my comments to our part of the market, where market size is more constrained. For the types of businesses we invest in, we have seen stable valuations for Saas FinTech companies in the range of 4-6x revenue and 10-15x EBITDA. That may scale up or down depending on several factors, including those cited above.

We don’t see a bubble in our part of the market. As long as interest rates remain reasonably low, leverage remains available, and there is steady demand for FinTech assets from cash-rich strategics and private equity firms (who hold a lot of dry powder), we think valuations are likely to persist in the near-term for high recurrence SaaS businesses that are growing at 20 to 30 percent-plus.

Goldenberg, LLR Partners. Valuations can vary significantly by sub-sector and will be affected by a number of factors – growth, forward visibility, and scalability often drive premium valuations. In addition, higher valuations are also being driven by a surplus of capital relative to attractive assets and increasing innovation. Total funding to FinTech companies in 2016 is still on pace with the 2015 peak, and we don’t see any material, near-term change in activity, as technology innovation in financial services has ample white space ahead.

Goldman, Susquehanna Growth Equity. It’s a tale of two worlds: It seems that Silicon Valley discovered FinTech about five years ago – and when that happened, all of the rules around valuation got thrown to the wind. We’ve seen pre-revenue companies raise tens of millions of dollars, and undifferentiated “rollups” with few barriers to entry get valued in the hundreds of millions. These are not based on financial metrics, but on Silicon Valley dreams of “get big or go home”. And yet, the core FinTech entrepreneurs who have been participating and making money in this industry for the last 20 years understand that ultimately the real strategic buyers will be paying 15x-20x EBITDA for fast growing companies and 10x EBITDA for stable companies. Those same entrepreneurs are focused on making



13

FinTech

Spotlight On:

WHAT ARE THE MAJOR CHALLENGES OF THE FINTECH INDUSTRY?

Many traditional financial services providers are still leveraging legacy technologies and systems, and while tech innovation is accelerating, change can be difficult, time consuming, and expensive. Increasingly, we are seeing success when technology is collaborative with incumbent financial services providers rather than a pure replacement. - Ryan Goldenberg


sure that their investors and their management teams ultimately make money when that exit happens, and as a result are more capital efficient. These management teams are based in cities like Denver, Atlanta, and New York – and these are the folks you want to be backing in good times and bad.

Q What are the major challenges in the FinTech industry?

Fenton, Serent Capital. It is hard to answer this question as the definition of FinTech is such a broad term. We believe the long-term trend towards a greater role of technology in the financial services industry will persist, but some FinTech business that have more direct exposure to inevitable business cycles could have challenges in front of them. The specialty lending businesses have had their share of challenges recently, as evidenced by the stock price declines at Lending Club, OnDeck, etc. While these declines are driven by a variety of factors, we are anecdotally hearing that some specialty lending businesses are starting to experience a lack of financing liquidity in the capital markets, which may portend concerns that traditional backers (e.g., hedge funds) may have as these companies go through their first recession after such a long period of sustained economic growth. In our companies, the biggest challenge we see currently is regulatory and economic uncertainty.

Goldenberg, LLR Partners. Many traditional financial services providers are still leveraging legacy technologies and systems, and while tech innovation is accelerating, change can be difficult, time consuming, and expensive. Increasingly, we are seeing success when technology is collaborative with incumbent financial services providers rather than a pure replacement.

Goldman, Susquehanna Growth Equity. Continually evolving regulatory, compliance, and fraud issues make it a challenging industry. These all create barriers to entry, but they also make it expensive to get into the business. Many of the customers and financial partners are excruciatingly slow to adopt, so you need to be patient and expect everything to take longer than you want.

Q How do you reconcile emerging, disruptive FinTech

players with increased governance and regulatory

oversight? What major compliance issues do you foresee?

Fenton, Serent Capital. In many respects, disruptive FinTech players are a response to increased governance and regulatory oversight. The reason companies like OnDeck and Lending Club have been so successful at disintermediating traditional lenders is in part due to reticence of banks to take risk given their regulatory capital requirements. In other markets (e.g., Mortgage, Banking tech), compliance creates an opportunity for outsourced technology providers (e.g., our companies Mercury Network and Docutech are directly addressing regulatory complexities in the mortgage origination market coming out of Dodd-Frank regulation).

Goldenberg, LLR Partners. To date, much of the pure FinTech space, not Financial Services, has remained relatively free from regulation. We expect that increasing regulation will present a challenge as well as an opportunity and could lead to further consolidation/collaboration with the incumbent banks. The DOL fiduciary rule in wealth management and EMV requirements in payments are good examples of recent regulation and governance that FinTech providers have been the beneficiaries of. If they continue to deliver products and services that increase transparency, security, and value to the end customer, governance and regulation should not stand in the way of their success.

Goldman, Susquehanna Growth Equity. We see lots of startups completely ignoring regulations when they start, and occasionally they can get away with that until they reach scale and deal with it then. But in general, we look to back operators who understand the regulatory environment, embrace it, and use it as a competitive moat. We hate to fund a company and find out one morning that the entire business has been shuttered by a regulator.


14

FinTech

Spotlight On:

WHAT PATHS CAN FINTECH STARTUPS TAKE TO BECOME SUSTAINABLE?

Developing a deep, diversified, and sticky customer base; a defensible position in the market; and a focus on a particular pain point will drive long-term sustainability, bottom line profitability, and shareholder value.

- Ryan Goldenberg

Q What segments (payments, wealth management,

consumer banking, data analytics, insurance, etc.) should

traditional banks be focused on?

Fenton, Serent Capital. It has been our view that traditional banks should try to leverage their primary depository role to increase share of wallet with consumers (i.e., cross sell as many products as they can, while adhering to ethical cross-sale practices). The large money center banks still do a reasonably poor job at this, as they remain regulated and siloed. FinTech can be complimentary to their efforts to do so, and the banks that will be most successful will best balance their competitive strength of being a depository institution with partnerships across a large a growing FinTech ecosystem.

Goldenberg, LLR Partners. Given the importance of owning the customer experience, we believe banks should focus on segments where they have the most touch points with their customers. Payments and wealth management are two examples where banks can focus on satisfying and owning the end customer experience.

Goldman, Susquehanna Growth Equity. Traditional banks are focused on all of those segments. The question is: where can they effectively compete against startups? It still comes down to the fact that great brands and great distribution is where the banks have the advantage, and new, slick technology with great user interfaces and user experiences is where they tend to fall behind. We think that with a Republican administration potentially loosening up some of the regulations, we will see banks once again dip their feet into FinTech and maybe come back as potential acquirers of innovative companies for the first time since 2006.

Q Most FinTech startups are unprofitable and are working

on building scale and a customer base. What paths can they

take to become profitable or sustainable?

Goldenberg, LLR Partners. Given the large opportunity in FinTech, sustainability and profitability do not necessarily go hand-in-hand, at least in the short term. Successful FinTech companies may be better served to focus on profitable customer acquisition rather than a profitable bottom line.

Developing a deep, diversified, and sticky customer base; a defensible position in the market; and a focus on a particular pain point will drive long-term sustainability, bottom line profitability, and shareholder value.

Goldman, Susquehanna Growth Equity. We hold by the Rule of 40 for FinTech companies, in the same way that we hold by it for SaaS companies. The Rule of 40 talks about great businesses being those where the sum of their revenue growth and EBITDA margin are equal to or great than 40. Once a business hits $20 million of revenue, we expect them to be able to flip a switch to profitability if growth slows down to 40 percent or less a year. If the company can show that it *can* be profitable, then we are willing to sacrifice that profitability to grow faster. We think the challenge in the industry is that many companies are inherently unprofitable because their unit economics stink – either it’s too expensive to acquire customers or they can’t figure out how to retain them. So our suggestion is to make sure you get the unit economics and customer acquisition machine working right first, then scale the business. Reversing that order can be very detrimental to wealth creation.


Middle Market M&A Activity Private Equity Transaction Activity*

Mergers & Acquisitions Activity

Trends in Valuation

Acquisition Financing Trends

Total Leverage Equity Contribution

SOURCE: Standard & Poors LCD.

SOURCE: Standard & Poors LCD.*NA: Data not reported due to limited number of observations for period. *NA: Data not reported due to limited number of observations for period.SOURCE: Standard & Poors LCD.

SOURCE: Standard & Poors LCD.

Transactions with Strategic Buyers Transactions with Financial Buyers

Transaction Count by Deal Size

Middle market enterprise values between $25 million and $500 million. Middle market enterprise values between $25 million and $500 million.

EBIT

DA

Mul

tiple

Tota

l Deb

t to

EBIT

DA

EBIT

DA

Mul

tiple

Equi

ty C

ontr

ibut

ion

(%)

Middle Market M&A Activity

SOURCE: PitchBook.SOURCE: S&P Capital IQ.Based on announced deals, where the primary location of the target is in the United States.Middle market enterprise values between $25 million and $500 million. *Buyout activity only

119

148

125

151

106 14

115

614

510

713

214

811

458 97 96 13

110

012

214

113

412

0 166

163

154

137

160

164 23

514

716

119

219

916

1 217

231

250

232

227

240

228

183

199

210

207 21

921

4 240

207 22

221

1 268

191 20

7 233

113

9112

011

119

714

5 161 23

420

416

823

022

621

417

6 211

188

307

208 22

7 248 28

623

325

5 328 35

528

327

0 305

334

261 27

125

86566

5963

6267 63

6336

5843

1919

26 3540

3242

5861

5563 68

5342

54 5069

3946

6079

4982

7370

60 5377 68

5477 51

$0

$10

$20

$30

$40

$50

$60

$70

$80

0

100

200

300

400

500

600

700

800

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016Transaction Value ($ in billions)

Num

ber o

f Tra

nsac

tions

$25M-$50M $50M-$250M $250M-$500M Trans Value

0500

1,0001,5002,0002,5003,0003,5004,0004,500

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Sep-15Sep-16

Under $25M $25M-$100M $100M-$500M $500M-$1B $1B-$2.5B $2.5B+

4.8x

5.4x

4.1x3.6x

4.1x 4.3x 4.5x4.7x 4.7x 4.8x 4.7x

0.0x

1.0x

2.0x

3.0x

4.0x

5.0x

6.0x

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Nov-16

38%

35%

46%

51%

47%

43%41% 40%

37%

44%43%

25%

30%

35%

40%

45%

50%

55%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Nov-16

8.2x

6.8x 7.

1x

9.8x

8.0x

7.6x 7.7x

8.6x 8.7x 9.

2x

7.3x

8.7x

9.4x

8.4x

7.6x

9.2x 9.

5x

8.9x

8.7x

10.1

x

10.3

x

10.0

x

9.1x

10.2

x

8.2x

9.5x 9.7x

9.7x

8.5x

9.1x

9.8x

11.1

x

5.0x

6.0x

7.0x

8.0x

9.0x

10.0x

11.0x

12.0x

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Nov-16

<$250 million $250-$499 million $500 million+

7.2x

8.3x

6.5x 6.6x

6.3x

8.2x

8.1x 8.

5x

8.2x

8.0x

8.0x

7.4x 7.

7x

7.7x

9.1x

8.6x

8.5x

9.9x

9.4x

7.5x

8.5x

9.1x

8.7x

8.7x

9.9x

10.1

x

10.1

x

5.0x

6.0x

7.0x

8.0x

9.0x

10.0x

11.0x

12.0x

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Nov-16

<$250 million $250-$499 million $500 million+

NA

*

NA

*

NA

*

NA

*

NA

*

NA

*N

A*

Overall M&A Activity


15

Business Services M&A Activity

PROFESSIONAL EMPLOYER ORGANIZATIONS

In May 2016, Parallel49 Equity acquired Questco. Based

in Houston, Texas, Questco is a professional employer

organization (PEO) that provides outsourced human

resource solutions, creating the opportunity for its small-

and medium-sized customers to focus on core business

activities. Questco’s service package includes payroll,

benefits administration, outsourced HR solutions, workers’

comp administration, and risk management, amongst other

services.

This acquisition is Parallel49’s first investment in a PEO

as it looks to establish a platform in the PEO and HR

outsourcing space. Going forward, the management team

is looking to establish an aggressive acquisition strategy as

well as expand geographically.

PAYROLL & PAYROLL PROCESSING

In October 2016, Kronos completed the acquisition of

Datamatics Management Services. Datamatics primarily

focuses on time and labor management services which

aligns with Kronos’ cloud-based workforce management

solutions. This acquisition allows Kronos to extend its HCM

solutions to Datamatics’ over 300 organizations, primarily

consisting of small- and mid-sized businesses.

Bob DelPonte, VP of the Kronos Workforce Ready

group, said: “Datamatics is a respected time and labor

management services and solutions provider. This

acquisition will provide Datamatics customers with the

opportunity to access highly sought-after human capital

management solutions from Kronos. Increasingly, HR

leaders are turning to the full-suite Kronos Workforce

Ready HCM platform to simplify time-consuming HR

processes such as recruiting and onboarding, benefits

administration, payroll, performance management, and

time and labor management to drive better business

outcomes.”

In October 2016, Serent Capital made an undisclosed

investment in Apex Software Technologies, a market

leader in cloud-based payroll and HR technology offering

a package of services that include payroll, payroll tax,

HR services, time and attendance, and workers’ comp,

amongst other services. This acquisition is Serent’s fifth

investment in the HR space over the last two years.

BENEFITS ADMINISTRATION

In March 2016, LLR Partners made an investment in

benefitexpress, a leader in cloud-based employee benefits

and health exchange services. With this acquisition,

LLR Partners further extended its platform within the

benefits management and human capital management

space. Michael Sternklar, former head of Mercer’s North

American benefits outsourcing business, will serve

SOURCE: S&P Capital IQ, PitchBook, Equity Research, Company Filings, and public data.


Source: S&P Capital IQ, mergermarket, PitchBook, and BGL Research.

Historical Business Services M&A Activity

Based on announced deals, where the primary location of the target is in the United States.

Quarterly M&A Activity by Sector

0

15

30

45

60

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2011Q4

2012 2013 2014 2015 2016 Q1 - Q3

Num

ber o

f Tra

nsac

tion

s

PEO Payroll Benefits Administration HR Technology Staffing

16

Business Services M&A Activity

STAFFING

In October 2016, Randstad North America completed

the acquisition of Monster Worldwide for $3.40 per

share in cash, or a total purchase price of approximately

$382 million. Monster Worldwide provides online and

mobile employment and recruitment solutions worldwide.

Randstad, as a leading provider of human resource

services, is looking to build the world’s largest and most

comprehensive portfolio of HR services.

“In an era of massive technological change, employers are

challenged to identify better ways to source and engage

talent,” said Jacques van den Broek, CEO of Randstad.

“With its industry leading technology platform and easy

to use digital, social, and mobile solutions, Monster is a

natural complement to Randstad. Transaction Multiples:

.62x Revenue and 6.8x EBITDA.

In August 2016, Morgan Stanley Private Equity made

an investment in 24 Seven, a company specializing

in the placement of temporary, temporary-to-hire,

direct hire, and executive search solutions to various

industries, including fashion, retail, marketing, advertising,

interactive/digital, e-commerce, design, beauty, events,

and sports/lifestyle industries. This is Morgan Stanley’s

sixth investment in the human capital management and

business services space.

Adam Shaw, Executive Director of Morgan Stanley Global

Private Equity, said, “24 Seven is an exceptional, high-

growth player in the attractive creative and digital staffing

end market.”

as CEO and Maria Bradley, founder and President of

benefitexpress, as a senior advisor and board member. The

transaction was followed in August with the acquisition of

benefitsCONNECT, a broker-centric benefits administration

and online enrollment solution—a move that will allow both

companies to increase their service offerings as well as

their client markets.

Benefitexpress CEO Michael Sternklar, said, “This was the

right time and opportunity to reinforce our commitment

to invest in growth and provide our combined client

and employee base a diverse suite of services for their

respective markets.”

HR TECHNOLOGY

In September 2016, Kanjoya, a leading workforce

intelligence and analytics platform for enterprises, was

acquired by Ultimate Software Group (NasdaqGS:ULTI),

a top provider of cloud-based HCM solutions in the

United States. Ultimate Software plans to launch UltiPro

Perception to improve clients’ ability to collect, understand

and act on employee feedback. The entire Kanjoya team

will be joining Ultimate Software and will assist with the

research and development.

In March 2016, Florida-based Mangrove Employer

Services, a leading Cloud SaaS vendor in Human Capital

Management (HCM) applications, was acquired by

global time and labor software provider Asure Software

(NasdaqCM:ASUR) in an $18.3 million transaction.

Mangrove’s service package includes HR/Payroll

applications designed to improve recruiting, management,

and payroll. Through this acquisition, Asure Software

is looking to launch its “People Success Platform”, an

innovative, comprehensive, and powerful platform bringing

together workforce and workspace management solutions.

Asure CEO Pat Goepel said “Asure’s People Success

Platform provides corporations a bridge from the rapidly

changing employee impact on today’s workplace to future

on-going corporate success.” Transaction Multiples: 2.2x

Revenue and 8.0x EBITDA

SOURCE: S&P Capital IQ, PitchBook, Equity Research, Company Filings, and public data.


17

Industry Valuations



BGL Business Services indices de�ned on Page 19.SOURCE: S&P Capital IQ.

Staffing

Payroll & Payroll Processing

HR TechnologyBenefits Administration

Professional Employer Organizations

Insurance Brokerage

Q210

Q310

Q410

Q111

Q211

Q311

Q411

Q112

Q212

Q312

Q412

Q113

Q213

Q313

Q413

Q114

Q214

Q314

Q414

Q115

Q215

Q315

Q415

Q116

Q216

Q316

EV/EBITDA 8.9x 10.9x 12.2x 12.2x 15.1x 9.5x 11.1x 11.4x 10.3x 12.1x 13.3x 16.4x 15.1x 17.3x 17.3x 16.3x 15.2x 13.6x 15.3x 16.2x 15.5x 15.2x 17.1x 16.6x 18.5x 21.1x

EV/Revenue 3.1x 3.3x 3.4x 4.2x 4.1x 3.4x 3.3x 3.9x 3.5x 3.7x 4.2x 4.3x 4.6x 6.2x 6.2x 4.8x 4.4x 4.2x 5.4x 4.9x 4.7x 4.1x 4.7x 4.4x 5.0x 5.5x

1.0x

2.0x

3.0x

4.0x

5.0x

6.0x

7.0x

4.0x

8.0x

12.0x

16.0x

20.0x

24.0x

28.0x

Q210

Q310

Q410

Q111

Q211

Q311

Q411

Q112

Q212

Q312

Q412

Q113

Q213

Q313

Q413

Q114

Q214

Q314

Q414

Q115

Q215

Q315

Q415

Q116

Q216

Q316



2.0x

3.0x

4.0x

5.0x

6.0x

7.0x

0.0x

4.0x

8.0x

12.0x

16.0x

20.0x

Q210

Q310

Q410

Q111

Q211

Q311

Q411

Q112

Q212

Q312

Q412

Q113

Q213

Q313

Q413

Q114

Q214

Q314

Q414

Q115

Q215

Q315

Q415

Q116

Q216

Q316



0.0x

1.0x

2.0x

3.0x

4.0x

5.0x

6.0x

0.0x

4.0x

8.0x

12.0x

16.0x

20.0x

Q210

Q310

Q410

Q111

Q211

Q311

Q411

Q112

Q212

Q312

Q412

Q113

Q213

Q313

Q413

Q114

Q214

Q314

Q414

Q115

Q215

Q315

Q415

Q116

Q216

Q316



0.0x

0.1x

0.2x

0.3x

0.4x

0.5x

0.6x

0.7x

0.8x

0.9x

1.0x

2.0x

6.0x

10.0x

14.0x

18.0x

22.0x

Q210

Q310

Q410

Q111

Q211

Q311

Q411

Q112

Q212

Q312

Q412

Q113

Q213

Q313

Q413

Q114

Q214

Q314

Q414

Q115

Q215

Q315

Q415

Q116

Q216

Q316



0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

0.0x

4.0x

8.0x

12.0x

16.0x

20.0x

Q210

Q310

Q410

Q111

Q211

Q311

Q411

Q112

Q212

Q312

Q412

Q113

Q213

Q313

Q413

Q114

Q214

Q314

Q414

Q115

Q215

Q315

Q415

Q116

Q216

Q316



0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

3.5x

0.0x

3.0x

6.0x

9.0x

12.0x

15.0x

18

Industry Valuations



NOTE: Figures in bold and italic type were excluded from median and mean calculation.(1) As of 12/2/2016.(2) Market Capitalization is the aggregate value of a �rm's outstanding common stock.(3) Enterprise Value is the total value of a �rm (including all debt and equity).Source: S&P Capital IQ.

($ in millions, except per share data) Current % of Market Enterprise Total Debt/ TTMCompany Name Country Ticker Stock Price (1) 52W High Capitalization (2) Value (3) Revenue EBITDA EBITDA Revenue Gross EBITDA

Staffing

Adecco Group AG Switzerland SWX: ADEN $61.72 88.9% $10,563.2 $11,890.1 0.5x 9.4x 2.0x $25,303.2 18.9% 5.2%

Robert Half International Inc. United States NYSE: RHI 45.56 89.8% 5,779.1 5,487.7 1.0x 8.6x 0.0x 5,289.9 41.2% 12.0%

ManpowerGroup Inc. United States NYSE: MAN 85.85 95.2% 5,757.0 6,210.4 0.3x 7.6x 1.1x 19,651.9 17.0% 4.1%

On Assignment, Inc. United States NYSE: ASGN 40.68 84.8% 2,153.5 2,795.2 1.2x 10.8x 2.6x 2,397.0 33.0% 10.8%

AMN Healthcare Services, Inc. United States NYSE:AMN 33.20 73.8% 1,595.2 1,964.6 1.1x 9.4x 1.8x 1,816.9 32.6% 11.6%

Korn/Ferry International United States NYSE: KFY 25.41 66.5% 1,471.2 1,497.2 1.1x 9.5x 1.7x 1,400.3 26.8% 11.1%

TrueBlue, Inc. United States NYSE: TBI 21.05 71.6% 868.2 982.8 0.3x 6.4x 0.9x 2,826.4 24.2% 5.4%

Kelly Services, Inc. United States NasdaqGS:KELY.A 20.13 95.9% 771.0 752.1 0.1x 7.8x 0.1x 5,434.0 17.1% 1.8%

Brunel International NV Netherlands ENXTAM: BRNL 14.80 69.1% 745.8 600.1 0.5x 11.0x 0.0x 1,163.6 20.2% 5.1%

Resources Connection, Inc. United States NASDAQ: RECN 16.20 88.7% 584.9 481.9 0.8x 8.8x 0.0x 593.6 38.6% 9.2%

Kforce Inc. United States NASDAQ: KFRC 21.85 81.1% 562.5 666.6 0.5x 8.7x 1.4x 1,321.4 31.2% 5.8%

Heidrick & Struggles International, Inc. United States NASDAQ: HSII 21.30 70.8% 395.8 295.8 0.5x 6.0x 0.0x 567.1 30.8% 8.7%

CDI Corp. United States NYSE: CDI 7.30 88.5% 136.2 141.0 0.2x NM NM 917.0 18.6% -0.6%

Median $21.85 84.8% $868.2 $982.8 0.5x 8.7x 1.0x $1,816.9 26.8% 5.8%

Mean $31.93 81.9% $2,414.1 $2,597.3 0.6x 8.7x 1.0x $5,283.3 26.9% 6.9%

PEO

Automatic Data Processing, Inc. United States NasdaqGS:ADP $95.24 97.6% $42,969.7 $42,159.8 3.6x 15.9x 0.8x $11,870.7 43.4% 22.3%

Paychex, Inc. United States NasdaqGS:PAYX 58.34 94.3% 21,098.7 20,652.3 6.9x 16.0x 0.0x 3,014.4 70.9% 42.8%

TriNet Group, Inc. United States NYSE:TNET 24.65 96.4% 1,696.6 2,004.2 0.7x 13.9x 3.3x 2,974.9 15.2% 4.8%

Insperity, Inc. United States NYSE:NSP 70.70 86.0% 1,504.3 1,383.3 0.5x 12.0x 0.9x 2,862.3 16.7% 4.0%

Barrett Business Services, Inc. United States NasdaqGS:BBSI 57.61 95.7% 417.3 394.2 0.5x 10.9x 0.1x 813.2 60.3% 4.4%

Median $64.52 95.0% $11,301.5 $11,017.8 2.0x 14.0x 0.4x $2,938.3 51.8% 13.4%

Mean $70.47 93.4% $16,497.5 $16,147.4 2.8x 13.7x 0.5x $4,640.2 47.8% 18.4%

Payroll & Payroll Processing

Automatic Data Processing, Inc. United States NasdaqGS:ADP $95.24 97.6% $42,969.7 $42,159.8 3.6x 15.9x 0.8x $11,870.7 43.4% 22.3%

Intuit Inc. United States NasdaqGS:INTU 113.26 96.8% 29,070.3 29,565.3 6.2x 20.7x 0.8x 4,759.0 84.2% 30.0%

Paychex, Inc. United States NasdaqGS:PAYX 58.34 94.3% 21,098.7 20,652.3 6.9x 16.0x 0.0x 3,014.4 70.9% 42.8%

Sage Group plc United Kingdom LSE:SGE 8.11 84.0% 8,754.9 9,151.9 4.6x 15.7x 1.3x 2,043.2 93.4% 29.4%

The Ultimate Software Group, Inc. United States NasdaqGS:ULTI 191.40 85.4% 5,550.8 5,450.4 7.4x 84.4x 0.2x 741.4 61.7% 8.7%

Paycom Software, Inc. United States NYSE:PAYC 43.54 82.3% 2,617.2 2,572.8 8.4x 41.5x 0.5x 306.4 85.7% 20.2%

Paylocity Holding Corporation United States NasdaqGS:PCTY 31.82 64.1% 1,633.8 1,555.8 6.2x 235.9x 0.0x 250.6 57.6% 2.6%

Median $95.24 94.3% $21,098.7 $20,652.3 6.2x 16.0x 0.8x $3,014.4 70.9% 29.4%

Mean $93.27 91.6% $21,488.9 $21,395.9 5.7x 30.5x 0.6x $4,485.7 70.7% 26.6%

Benefits Administration

Aon plc United Kingdom NYSE: AON $111.62 97.5% $29,366.6 $34,725.6 3.0x 13.9x 2.5x $11,571.0 41.2% 21.5%

SS&C Technologies Holdings, Inc. United States NasdaqGS:SSNC 28.98 80.1% 5,877.7 8,266.2 6.0x 17.3x 5.2x 1,381.4 45.6% 34.5%

Benefitfocus, Inc. United States NasdaqGM:BNFT 27.10 60.2% 806.2 821.2 3.6x NM NM 225.0 47.3% -12.2%

Morneau Shepell Inc. Canada TSX:MSI 13.82 89.6% 735.4 927.6 2.1x 13.7x 2.8x 448.5 33.1% 15.3%

CBIZ, Inc. United States NYSE: CBZ 12.45 97.6% 656.0 876.1 1.1x 10.4x 2.6x 785.5 12.5% 10.7%

Castlight Health, Inc. United States NYSE: CSLT 4.20 81.6% 435.6 319.1 3.4x NM 0.0x 93.1 61.5% -67.6%

Median $28.04 84.8% $3,342.0 $4,596.9 3.3x 13.9x 2.8x $914.9 43.4% 18.4%

Mean $45.38 81.8% $9,196.5 $11,185.1 3.7x 15.0x 3.5x $3,406.5 41.8% 14.8%

Insurance Brokerage

Marsh & McLennan Companies, Inc. United States NYSE: MMC $68.39 98.0% $35,261.5 $38,712.5 2.9x 12.6x 1.6x $13,185.0 43.5% 23.3%

Aon plc United Kingdom NYSE: AON 111.62 97.5% 29,366.6 34,725.6 3.0x 13.9x 2.5x 11,571.0 41.2% 21.5%

Willis Towers Watson Public Limited Company United Kingdom NasdaqGS:WLTW 119.94 89.9% 16,401.4 19,607.4 2.9x 14.5x 2.8x 6,844.0 39.7% 19.9%

Arthur J. Gallagher & Co. United States NYSE: AJG 49.16 93.9% 8,756.0 11,064.6 2.0x 13.0x 3.3x 5,489.1 29.5% 15.6%

Brown & Brown, Inc. United States NYSE: BRO 43.22 98.9% 6,059.8 6,670.1 3.8x 11.5x 1.9x 1,733.7 48.7% 33.4%

Erie Indemnity Company United States NasdaqGS: ERIE 108.30 98.5% 5,663.0 5,523.2 NM NM 0.0x -1,829.2 NA NA

CorVel Corporation United States NasdaqGS: CRVL 31.70 59.6% 617.9 577.1 1.1x 8.9x 0.0x 508.9 20.3% 12.8%

Median $68.39 97.5% $8,756.0 $11,064.6 2.9x 12.8x 1.9x $5,489.1 40.5% 20.7%

Mean $76.05 90.9% $14,589.4 $16,697.2 2.6x 12.4x 1.7x $5,357.5 37.2% 21.1%

HR Technology

Oracle Corporation United States ORCL $38.50 91.7% $158,067.1 $144,124.1 3.9x 9.9x 3.7x $37,194.0 58.4% 39.3%

SAP SE Germany SAP 82.20 93.3% 98,486.4 101,322.1 4.4x 16.4x 1.3x 24,370.3 68.2% 26.6%

LinkedIn Corporation United States NYSE: LNKD 195.20 80.0% 26,456.6 24,282.2 6.7x 50.9x 2.4x 3,615.0 86.8% 13.2%

Workday, Inc. United States WDAY 71.40 76.5% 14,351.4 12,965.2 8.9x NM NM 1,456.2 68.7% -16.8%

Global Payments Inc. United States NYSE:GPN 68.13 85.2% 10,471.4 14,468.0 4.7x 19.5x 6.5x 3,088.8 56.7% 24.0%

Sage Group plc United Kingdom LSE:SGE 8.11 84.0% 8,754.9 9,151.9 4.6x 15.7x 1.3x 2,043.2 93.4% 29.4%

The Ultimate Software Group, Inc. United States ULTI 191.40 85.4% 5,550.8 5,450.4 7.4x 84.4x 0.2x 741.4 61.7% 8.7%

SEEK Limited Australia ASX: SEK 11.00 86.1% 3,809.9 4,332.0 6.0x 16.2x 2.4x 719.2 95.9% 35.9%

WageWorks, Inc. United States WAGE 72.85 96.8% 2,669.4 2,081.7 6.0x 32.3x 1.2x 346.8 65.6% 18.6%

Cornerstone OnDemand, Inc. United States CSOD 34.28 71.8% 1,926.1 1,924.9 4.7x NM NM 410.0 68.0% -11.4%

CEB Inc. United States CEB 57.15 76.9% 1,841.8 2,592.3 2.8x 13.4x 4.6x 938.6 63.7% 20.7%

Callidus Software Inc. United States NasdaqGM: CALD 15.55 71.9% 987.1 800.9 4.1x NM 0.0x 197.4 62.5% -0.5%

HealthStream, Inc. United States NasdaqGS: HSTM 26.03 90.3% 826.2 725.6 3.3x 31.0x 0.0x 223.1 57.8% 10.6%

Benefitfocus, Inc. United States BNFT 27.10 60.2% 806.2 821.2 3.6x NM NM 225.0 47.3% -12.2%

DHI Group, Inc. United States NYSE: DHX 6.00 59.7% 298.7 359.9 1.5x 6.9x 1.7x 237.1 85.5% 21.9%

Halogen Software Inc. Canada TSX:HGN 6.68 85.0% 143.6 108.7 1.6x 33.6x 0.0x 70.7 75.8% 4.6%

Median $36.39 84.5% $3,239.7 $3,462.2 4.5x 18.0x 1.3x 730.3 66.8% 15.9%

Mean $56.97 80.9% $20,965.5 $20,344.4 4.6x 27.5x 1.9x $4,742.3 69.8% 13.3%

TTM MarginsEnterprise Value / TTM

19

Industry Valuations

Sector Performance


20

Source: S&P Capital IQ.As of 12/2/2016.

17%14% 15%

5%

-3%

19%

11% 8% 9%

-1%

-11%

18%25%

34%

20%

6%

-3%

33%

93%100%

120%

37%

68%

104%

-20%

0%

20%

40%

60%

80%

100%

120%

140%

ProfessionalEmployer

Organizations

Payroll & PayrollProcessing

BenefitsAdministration HR Technology

Staffing

InsuranceBrokerage

YTD 1 Year 3 Year 5 Year

Market

Sector

9% 7%5%3%

22%

30%

76%

100%

0%

20%

40%

60%

80%

100%

120%

S&P 500 Nasdaq

YTD 1 Year 3 Year 5 Year

• Dedicated team of senior and junior level bankers focused on the Financial Technology sector

• Deep industry knowledge and extensive transaction experience

• Middle market-focused with comprehensive suite of advisory and capital raising services tailored to clients that span technology startups to established HR service companies

• Vast network of relationships and transaction experience with strategics and private equity groups active in the industry

• Senior Advisors augment industry knowledge and extend industry network and contacts

Global Business Services

Unparalleled Commitment to the FinTech Industry

Deep & Broad Industry Knowledge and Experience

Relationships with Key Industry Participants

Dedicated Team

• Leads BGL’s Business Services practice

• Over 37 years of corporate finance experience encompassing hundreds of M&A and capital raising transactions

• Former President of Hampton Advisors, an advisory and consulting firm focused on the HRO industry

• Former Chief Administrative Officer at Gevity HR, a large public HRO, responsible for strategy, budgeting, corporate development, legal, HR, investor relations, and compliance

• Former Managing Director at Dresner Partners, a middle market investment bank in Chicago

• Began career as a Corporate Partner at McDermott Will & Emery

•

• B.S., summa cum laude, University of Illinois

• J.D., Harno Fellow, magna cum laude, University of Illinois

• M.M., Honors, Kellogg School of Management at Northwestern University

CLIFFORD SLADNICKManaging Director

Group Head

JESS HU NGER

Senior Analyst

• Performs due diligence, financial analysis, valuation, and industry research within BGL’s Business Services Practice

• Experience with more than a dozen HR Technology clients over the past year

• Three years corporate finance and capital markets experience

• Former Analyst with KeyBanc Capital Markets, focused on mergers and acquisitions

• B.S., magna cum laude, Fisher College of Business at Ohio State University

PROFESSIONAL EXPERIENCE

One Cleveland Center 1375 East 9th Street

Suite 2500Cleveland, OH 44114

p. 216.241.2800

CLEVELANDOne Magnificent Mile

980 N. Michigan AvenueSuite 1880

Chicago, IL 60611p. 312.658.1600

CHICAGOContacts

EDUCATION EDUCATION

• Supports client engagements through financial analysis, valuation, due diligence, negotiation, communication, and other advisory services within BGL’s Business Services Practice

• More than nine years of corporate finance and capital markets experience

• Former Vice President in the Investment Banking & Capital Markets Group at Aon Securities, Inc.

• Former Senior Associate in the Mergers & Acquisitions Group at Scott-Macon, Ltd., a middle market investment bank in New York

• Former Associate in the Global Mergers & Acquisitions Group at Banc of America Securities LLC

SAGAR JANVEJAVice President

• B.A., University of Michigan

• M.B.A., McDonough School of Business, Georgetown University

PROFESSIONAL EXPERIENCE PROFESSIONAL EXPERIENCE

EDUCATION

ZAC HAR Y G ANIEANY

Analyst

• Performs due diligence, financial analysis, valuation, and industry research within BGL’s Business Services Practice

• Prior experience as an intern with BGL, working with the Business Services team and focused on mergers and acquisitions and capital raises

• Prior experience as an intern with the Federal Deposit Insurance Corporation (FDIC), focused on economic research and analysis

• B.S., Finance Honors, magna cum laude, Driehaus College of Business at DePaul University

EDUCATION

PROFESSIONAL EXPERIENCE

One Liberty Place1650 Market Street

Suite 3600Philadelphia, PA 19103

p. 610.941.2765

PHILADELPHIA

The information contained in this publication was derived from proprietary research conducted by a division or owned or affiliated entity of Brown Gibbons Lang & Company LLC. Any projections, estimates or other forward-looking statements contained in this publication involve numerous and significant subjective assumptions and are subject to risks, contingencies, and uncertainties that are outside of our control, which could and likely will cause actual results to differ materially. We do not expect to, and assume no obligation to update or otherwise revise this publication or any information contained herein. Neither Brown Gibbons Lang & Company LLC, nor any of its officers, directors, employees, affiliates, agents or representatives makes any representation or warranty, expressed or implied, as to the accuracy, completeness or fitness of any information contained in this publication, and no legal liability is assumed or is to be implied against any of the aforementioned with respect thereto. This publication does not constitute the giving of investment advice, nor a part of any advice on investment decisions and nothing in this publication is intended to be a recommendation of a specific security or company, nor is any of the information contained herein intended to constitute an analysis of any company or security reasonably sufficient to form the basis for any investment decision. Brown Gibbons Lang & Company LLC, its affiliates and their officers, directors, employees or affiliates, or members of their families, may have a beneficial interest in the securities of a specific company mentioned in this publication and may purchase or sell such securities in the open market or otherwise. Nothing contained in this publication constitutes an offer to buy or sell or the solicitation of an offer to buy or sell any security.

Global Business Services

For questions about content and circulation, please contact editor, Rebecca Dickenscheidt, at [email protected] or 312-513-7476.

Focus Areas

• Human Resources Outsourcing

• Human Resources Technology

• Professional Employer Organizations

• Financial Technology

• Insurance Brokerage

• Health & Benefits Administration

• Payroll & Payments Processing

• Professional Services

• Staffing / Recruiting Services

Representative Expertise

Clifford M. SladnickManaging Director & [email protected]

BGL Contact

• Independent investment banking advisory firm focused on the middle market

• Senior bankers with significant experience and tenure; partners average over 20 years of experience

• Offices in Chicago, Cleveland, and Philadelphia

• Founding member and exclusive U.S. partner of Global M&A Partners, Ltd., the world’s leading partnership of investment banking firms focusing on middle market transactions

• Deep industry experience across core sectors of focus, including: Business Services, Consumer, Environmental & Energy Services, Healthcare & Life Sciences, Industrials, and Real Estate

Who We Are

Sell-Side Advisory

Acquisitions & Divestitures

Public & Private Mergers

Special Committee Advice

Strategic Partnerships & Joint Ventures

Fairness Opinions & Fair Value Opinions

All Tranches of

Debt & Equity Capital for:

Growth

Acquisitions

Recapitalizations

Dividends

General Financial & Strategic Advice

Balance Sheet

Restructurings

Sales of Non-Core Assets or Businesses

§363 Auctions

Comprehensive Capabilities

M&A A D V I S O R Y P R I V A T E P L A C E M E N T S

Leading Independent Firm

Primary Research

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White Papers

Industry Surveys

F I N A N C I A L A D V I S O R Y R E S E A R C H

Documents

Chicago FinTech Philadelphia One Liberty Place Suite 3600 ... · PDF fileWealth Management Traditionally ... SOURCE: S&P Capital IQ, PitchBook, Equity Research; ... Services, in 2015