RPA Market ReviewThe digital workforce revolution continues

H2’19

RPA Market Review: The digital workforce revolution continues 2

Foreword

The Robotic Process Automation (RPA) sector is in the midst of a global arms race.

What started out as an emerging domain of software ‘robots’ performing repetitive tasks to augment or replace human employees, is now rapidly turning into the next wave of the industrial revolution. With early experiments with RPA successfully proving its ROI, businesses of all shapes and sizes are now looking at RPA as a strategic tool to drive efficiency and upskill their workforce.

Investec’s Technology team sees the massive opportunities open to RPA vendors across both software and services, and the investors backing them. This document aims to provide an update on the current financing and M&A environment of the booming RPA market.

Sebastian LawrenceTechnology Investment BankingT: +44 (0)20 7597 5215 E: sebastian.lawrence@investec.co.ukL: LinkedIn

Alisdair BradyTechnology Investment BankingT: +44 (0)20 7597 3643E: alisdair.brady@investec.co.ukL: LinkedIn

About Investec

>$1.1 billionof Technology M&A in 2019

>$500 millionraised for Technology companies in 2019

>$2.9 billionof M&A across all sectors in 2019

>$185 millionraised for Blue Prism since 2016

Come and talk to us

Whether you are a RPA entrepreneur looking to explore strategic options for your business, or an investor / strategic buyer looking for advice in evaluating and financing an RPA acquisition, Investec can help by providing buyside or sellside advice, raising investment from private equity / venture capital or via an IPO.

Read how Blue Prism used RPA Services Partners to rapidly scale

RPA Market Review: The digital workforce revolution continues 3

2019 RPA market reviewRPA industry concerns took the spotlight in 2019 but under the surface the market continues to gain momentum

2019 saw various “RPA industry issues” enter the spotlight, particularly around product scalability. Indeed, numerous key vendors would appear to have over-sold ROI benefits from automation, selling on roadmap as opposed to actual product, and using AI as a form of silver bullet – these vendors now have something of an upselling challenge.

Whilst RPA industry woes and UiPath cutting c.400 employees made the headlines, momentum remained strong for the wider RPA market. Automation Anywhere‘s $290m fundraise, Blue Prism‘s strong H2 financial performance, and UiPath reaching c.$300m ARR shows RPA is still growing and investor appetite remains buoyant. Furthermore, there was a notable uptick in M&A in the broader RPA and enterprise automation technologies space with the likes of Appian acquiring Jidoka and HelpSystems receiving strategic investment from TA Associates and Charlesbank.

H2’19 activity remained high among the three leading vendors:

Blue Prism reported strong full year performance for FY19 with a significant acceleration in sales in the second half of the year. The company attributed the material additions in total business generated in the year to increased upsells and deal sizes. Investec acts as Financial Adviser and Broker to Blue Prism.

In November, Automation Anywhere announced it had raised $290m at a c. $6.5bn pre-money valuation. CEO Mihir Shukla guided to 100% revenue growth for the year, with the company now serving +3,500 customers.

In October, UiPath announced c.400 employees (c. 10% of the company’s workforce), including CFO Marie Myers, were being laid off. Earlier in the month the company announced the acquisition of ProcessGold International, the Netherlands-based Process Mining enterprise software for business process management and optimisation, for an undisclosed consideration.

Outside the three market leaders, there has been a significant increase in the level of M&A and fundraising activity among other RPA and enterprise automation software vendors:

• Appian announced the acquisition of Novayre Solutions, developer of the Jidoka RPA platform. Jidoka is currently the highest-rated RPA software on Gartner Peer Insights;

• HelpSystems secured strategic investment from TA Associates and Charlesbank in Q4’19. The company proceeded to acquire UK-based cyber security specialist Clearswift just before year end;

• Mesmer Eyes, provider of RPA software to automate mobile app testing, raised $15m in Q3’19. Investors included Intel Capital and True Ventures; and

• EdgeVerve systems announced a number of strategic partnerships including Al Ahli Bank of Kuwait Partners, consulting firm IDEGO and WM Promus Partners, to help drive forward its award-winning automation platform, AssistEdge

~$12 billionsize of the RPA market by 2023*

Source: Investec Securities, MergerMarket, VentureBeat, Gartner, PR Newswire, Crunchbase, Techcrunch, Craft

Note: *Forrester

RPA Market Review: The digital workforce revolution continues 4

Blue Prism

Strong H2’19 performance

Blue Prism reported +£100m of revenue for FY19 (FY18: £55.2m), with a strong acceleration in MRR, with underlying H2’19 MRR c. 64% higher than H1’19. Deal sizes have risen solidly in the half-year, whilst upselling behaviour from single robot deals looks to be equally encouraging.

Is Blue Prism proving to be class leader in upselling at scale?

2019 has seen unprecedented levels of “hype” around RPA vendors, but recent news relating to the leading vendors in this space suggests the tide may be beginning to turn. Blue Prism remains the category leader in unattended automation, and recent metrics around upselling and customer retention rates suggest the vendor could be emerging as a leader in upselling at scale – the next stage of market evolution in RPA.

Automation Anywhere

Automation Anywhere raise $290m

November 2019 Automation Anywhere announced it had raised $290m at a c. $6.5bn pre-money valuation. Salesforce Ventures led the round, with additional contributions from existing investors, including SoftBank and Goldman Sachs. This brings AA’s total raised to date to c. $840 million a year after the firm secured $550 million from SoftBank, Workday Ventures, NEA, General Atlantic, Goldman Sachs, and World Innovation Lab.

Strong, sustainable growth

AA’s CEO has guided to 100% revenue growth for the year, with the company now serving +3,500 customers in more than 90 countries, supported by a workforce of c. 1,750 employees in 20 global location. Based on the below estimates of total number of customers, AA’s more “thoughtful” approach to growth, as proclaimed by CEO Mihir Shukla, may well be starting to have a positive impact on customer acquisition numbers, with notable uptick in 2019.

UiPath

Hype and overvaluation?

Months after raising $568m at a $6.4m pre-money valuation UiPath announced c. 400 employees (c. 10% of the company’s workforce), including CFO Marie Myers, were being laid off. This has raised questions as to whether the company has spent too much cash on marketing and not enough on driving the business forward. In the context of their recent Las Vegas event which was estimated to have cost c. $8m, the news came as a shock to many analysts.

Not all doom and gloom

UiPath subsequently announced that ARR has reached c. $300m, implying the financial health of the company is not as bad as the redundancies might suggest. Indeed, there has been speculation that the job cuts were in line with a broader shift in strategy and restructuring as UiPath prepares for an IPO.

The digital workforce revolution continues...RPA industry concerns took the spotlight in 2019 but under the surface the market continues to gain momentum

Source: Investec Securities, Gartner; Crunchbase, Techcrunch, Craft

Note: *Business Insider, **most recent publicly available estimate

+1,000

+1,750

+2,900

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2019 fundraisings exceed $1bn

Total funds raised by RPA software vendors by quarter / per annum / per vendor

$10.00m$35.0m $30.0m

$12.0m

$209.0m

$50.0m

$540.0m

$304.5m

$171.0m

$588.0m

$305.0m

$0.0m $10.0m

$77.0m

$1,104.3m

$1,064.0m

$201.5m$187.8m

$840.0m

$1,016.0m

Source: Investec estimates; Crunchbase

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AA’s $290m fundraise yields the largest pre-money valuation of any RPA software vendor to date

Leading software vendor valuations (pre-new money)

Key Market cap Pre-money valuation at fundraise

Source: Investec estimates, Factset & Crunchbase at quarter-end or pre-money valuation

RPA Market Review: The digital workforce revolution continues 7

Service Orchestration: the fourth industrial revolution?

RPA alone may not be enough to realise the full benefits of automation

Whilst the uptake of RPA tools among enterprises continues to grow at an exponential rate, it is becoming increasingly evident for a number of customers that scaling RPA within the organisation is a challenge and that the ROI promised by vendors is not materialising as expected. Indeed, Deloitte’s RPA survey indicated that only 4% of respondents were operating more than 50 robots, up from 3% in 2017, demonstrating the lack of scalability of RPA to date. In addition, EY’s report predicts 30-50% of all initial RPA projects to fail, citing reasons such as targeting RPA at the wrong processes, applying traditional delivery methodologies and treating robotics as a series of automations rather than an end-to-end change program.

Enter service orchestration

Service orchestration software provides a platform to manage any vendor automation technology alongside humans to create an efficient digital workforce. Whilst RPA can act as a building block to transform business operations, service orchestration tools act to ensure all the various tasks associated with delivering a process are completed seamlessly in sync with the various technologies employed by the business, as well as the employees involved. Without this governance and workflow engineering, RPA can be constrained to delivering sub-processes within a service marginally more efficiently. Service orchestration thus has the potential to act as the key to unlocking scalable intelligent automation across organisations.

Top 3 barriers to scaling RPA*

Process fragmentationOnly 19% of organisations are focusing on RPA alone. Most are combining RPA with process re-engineering and cognitive Technologies

Lack of IT readinessIT support for RPA is critical to achieving substantial scale

Lack of clear visionOrganisations need to set clear, targeted goals for automation technologies with senior buy-in

RPA doesn’t rewire business processes“Despite offering clear technical capability and the real advantage of breathing life into legacy systems and processes, RPA hasn’t inspired enterprises to rewire their business processes – it’s really just helped them move data around the company faster and require less manual intervention.”

Phil Fersht, HFS Research

Vendors

A number of service orchestration and digital operations management software vendors are emerging who’s platforms allow organisations to orchestrate work across their human and “virtual workforce”, irrespective of the automation vendor technology employed, reducing costs and improving quality of service. This additional layer of end-to-end governance and workflow engineering across all resources can act as the enabler for intelligent automation at scale, something RPA alone is struggling to achieve.

Selected service orchestration players

Source: HFS Research, Deloitte consulting “The robots are waiting, are you ready to reap the benefits?”; ComputerWeekly, EY “Get ready for robots”Note: *Deloitte consulting

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About Investec

Rank House Total raised (£m) Number of deals

1 Investec 646 7

2 Jefferies 561 3

3 Credit Suisse 528 2

=4 Deutsche Bank 405 1

=4 JP Morgan 405 1

=4 Morgan Stanley 405 1

=4 UBS 405 1

8 Liberum 341 2

9 Numis 311 3

10 Canaccord 160 1

Rank House Total value (£m) Number of deals

1 Investec 3,043 18

2 HSBC 2,703 7

3 Lazard 1,891 6

4 Canaccord 1,712 19

5 Rothschild 1,520 11

6 Jefferies 1,405 6

7 EY 1,356 6

8 Goldman Sachs 1,267 3

9 Evercore 1,239 4

10 Numis 1,212 12

#1 in Tech & Telecoms IPOs by value and volume (last 10 years)

#1 in Tech & Telecoms takeovers (last 10 years)

>$185 millionraised for Blue Prism since 2016

>$500 millionraised for Technology companies in 2019

>$1.1 billionof Technology M&A in 2019

>$2.9 billionof M&A across all sectors in 2019

Sebastian LawrenceTechnology Investment BankingT: +44 (0)20 7597 5215 E: sebastian.lawrence@investec.co.ukL: LinkedIn

Alisdair BradyTechnology Investment BankingT: +44 (0)20 7597 3643E: alisdair.brady@investec.co.ukL: LinkedIn

Source: Factset, includes all Technology and Telecoms IPOs on AIM & Main Market with a fundraise <$500mSource: FactSet; includes all UK public Technology & Telecoms takeover transactions up to $1.5bn deal value (last 10 years)

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