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European VoIP Summit 2016Exploring the Future of Voice Communications
#VoIPSummit
1/03/2016The European VoIP Summit Gold Sponsors: 2
Fáilte roimhWillkommen
WelkomVelkommen
欢迎Bienvenue
Thank you to our Sponsors
#VoIPSummit
1/03/2016The European VoIP Summit Gold Sponsors: 3
Event has doubled in 12 months
• 219 registered from over 60Service Providers
• New Venue • Great selection of Sponsors• Event is “For the Industry, by the Industry”
• Opportunity to learn from peers around Europe
• Plenty of time for networking• Limited death by PowerPoint • Industry leaders speaking
Debate Encouraged !!
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1/03/2016The European VoIP Summit Gold Sponsors: 5
The Cavell Group
+ ++
Supporting businesses in EMEA to evaluate strategic investments, create sustainable service roadmaps & operating models and executing plans
Cavell is a specialist Consulting, Research and Professional Services business, focused on emerging Communications Markets
61/03/2016The European VoIP Summit Gold Sponsors:
What do we do in Cloud Comms Market?
• Key Source for Market Research & Analysis – UK & European Reports
• Commercial & Market Due Diligence
• Product & Go To Market Consulting
• Europe Professional services: Site Survey, Dial Plan testing, Handset install & training
• Content Development – White Papers
Vendors/Investors & Integrators
EMEA Service Providers
7
Trends and Market Information #VoIPSummit
Netherlands is Europe’s most advanced market
3/7/16Copyright Cavell Group 8
“Over 60 identified providers but 75% of seats fall under Top 10”
“Most Penetrated Mainland European Market”
“820k Business Seats in the Market”
“Significant New breed competition & Incumbents”
“Significant success in the SME addressing simple business process improvement proposition through indirect channels ”
“Business Demographics Favorable to Hosted VoIP services”
Belgium starting to look more interesting
3/7/16Copyright Cavell Group 9
“Underpenetrated Market with only 88,300 seats around 10% of Netherlands”
“Set to grow as incumbents Telenet & Proximus both bringing services To market”
“19 Identified Services providers, mixture of local self built Providers and SPs serving multinationals”
“Business Demographics look attractive with large number of SMEs but held back by access to Fibre
A number of players offering simple SIP Trunk and gateways solution not Hosted VoIP
UK Breaks the 2 million Hosted Seat & SIP continues momentum
Hosted VoIP market has grown to a total of 2,175,065 at end of 2015
Hosted VoIP market grown by 266,392 seats in the last six months of 2015. This is annual growth of 525,846 Seats (32%)
The SIP Trunking market had grown to a total of 1,922,510 SIP Trunks
SIP Trunking market had grown by 232,070 Trunks in the last six months of 2015. This equates to 453,131 Trunks added annually (31%)
Growth in Large Enterprise Hosted was slow as we start to see impact of Skype on Market
101/03/2016The European VoIP Summit Gold Sponsors:
Mergers and Acquisitions particularly around Contact Centre Assets
3/7/16Copywright Cavell Group 11
November 5th 2015: Magnetic North was purchased by West Corporation, apparently one of the main reasons for purchase, was to gain access to the hosted Contact Centre Assets. This signifies both an increased interest from US companies expanding into the UK, and also a focus on Contact Centre Assets ].
February 8th 2016: Broadsoft announced the acquisition of Transera a cloud contact centre player. This will help them fill a hole in their current portfolio and expertise. Mike Tessler, Broadsoft CEO, commented: “Today’s acquisition brings together the leading cloud unified communications provider with a pioneer redefining contact center performance through omni-channel and big data analytics”.
These two announcements follow 8x8 acquisition of DXI UK in May 2015, which also help them build out there contact center assets. We are also seeing other providers look to
increase their application capability through Acquisition.
Thinkingphones acquired video platform Fuze and rebranded in
November
RingCentral acquired messaging & collaboration player GLIP in
November
Themes Across Europe we are going to explore
121/03/2016The European VoIP Summit Gold Sponsors:
Mobility - FMC
Channel Development
Market Consolidation
End of ISDN
WEBRTC/Application
Future Market Development
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Drivers & Roadblocks to SIP & Hosted VoIP Market Expansion
#VoIPSummit
141/03/2016The European VoIP Summit Gold Sponsors:
Panelists
Alan FoyMD, CEO
Samuel De Weaver CTO
Alan MackieProduct Director
Rami HoubbyMDModerator: Rob Kurver
Benelux Analyst
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European PSTN Switch Off#VoIPSummit
161/03/2016The European VoIP Summit Gold Sponsors:
Panelists Gary Pryor Enterprise Sales Director
Steve BestMD, Product Managements
& Strategy
Charles BlighMD
Guy YaffeVP of Business Development
Voice
Moderator: Matt TownendDirector, Research & Consulting
1/03/2016The European VoIP Summit Gold Sponsors: 17
PSTN switch off could dramatically change the speed in which SIP Trunking grows
• Most countries have announced an end date to the PSTN network.
• BT announcement of 2025 will drive change
• Virgin Media have not announced date but are moving towards decommissioning
• Voiceflex and others are advertising the end of ISDN
• Providers will start to move existing customers to SIP
1/03/2016The European VoIP Summit Gold Sponsors: 18
New class of SIP services emerging as SPs look to differentiate
• Currently SIP trunks are generally sold as capacity products, competing directly with
ISDN
• Price falls and increased competition in SIP T is making providers consider new
services
• In recent Cavell whitepaper we mention that around 5% are already sold as
Application based services SIP A (Application) is a Trunking service that focuses on giving the customer access to additional UC applications, including Mobility
SIP C (Capacity) is a Trunking service that is focused on providing a scalable, flexible Voice access service. Providers offering SIP C type service are focused on offering high capacity and highly resilient SIP access
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Coffee/Tea Break#VoIPSummit
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Opportunities and Threats from Mobility
#VoIPSummit
211/03/2016The European VoIP Summit Gold Sponsors:
Panelists
Ian PattisonInternational CTO, Mobile Division
Ian CooperHead of Communication Products
Jed PellHead of UC One Sales & Nordics
Paul HoldenHead Of UCaaS Enterprise
Moderator: Dominic BlackSenior Market Analyst
22
Empowering the Channel to sell Cloud Services
#VoIPSummit
231/03/2016The European VoIP Summit Gold Sponsors:
Panelists
Steve HarrisMD
John WhittyCEO
Tim AlexanderDirector of Partner Sales
Campbell WilliamsGroup Strategy & Marketing Director
Moderator: Matt TownendDirector, Research & Consulting
Sales shift – Supply to Adoption Model
• Genband’s Nuvia Cloud Service was the latest in a series of launches of pay-as-you-go platforms from the likes of Broadsoft, Mitel and other Softswitch providers and traditional IP-PBX manufacturers.
• These launches signify a major change in the supply chain of the industry from a “supply” to an Adoption paradigm.
• The whole supply channel becoming focused on the Adoption of services on a per-user basis.
• Manufacturers/Service Providers and indirect channels are now all reliant on users coming onto the platforms and staying on the platforms and consuming new services.
• There will not be enough channels for all these providers to be successful.
24The European VoIP Summit Gold Sponsors: 1/03/2016
25
Lunch Break#VoIPSummit
26
European Regulation: Risks to the Industry
#VoIPSummit
271/03/2016The European VoIP Summit Gold Sponsors:
Presenters
Matthew McDermottDirector EMEA Public Policy
Mark SwarbrickHead of Telecommunications, Markets, and Regulatory Policy
European Regulation: Risks to the IndustryEuropean VoIP Summit - 1 March 2016
Access Partnership 2016
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A Year of Change
Access Partnership 2016
Europe faces many issues in 2016:
Migrant Crisis “Brexit” Greek sovereign debt
…and the Digital Single Market?
3030
Digital Single Market
The Commission’s Communication on a Digital Single Market for Europe (DSM) is built on three pillars
i) better access for consumers and businesses to online goods and services across Europe
ii) creating the right conditions for digital networks and services to flourish
iii) maximising the growth potential of our European Digital Economy
Access Partnership 2016
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Telecoms
Battle within the mobile industry as to whether the answer is – to reduce regulation for all, or– increase regulation for VoIP providers
Many MNOs still calling for a “level playing field”…
…and the European Commission thinks they may have a point
Access Partnership 2016
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DSM Foundations
Net Neutrality
Cybersecurity
Data Protection
Access Partnership 2016
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Net Neutrality
Every European must be able to have access to the open internet – blocking and throttling the internet will be illegal in the EU
All traffic will be treated equally – no paid prioritisation BEREC guidelines in place by November 2016 –consultation expected later in the year
Netherlands and Slovenia must water down existing laws Review of UK Open Internet Code
Access Partnership 2016
3434
Cybersecurity
New network and information security requirements on operators of essential services and digital service providers (DSPs)
Essential services: Energy, transport, financial services, health and drinking water or digital infrastructure
DSPs: Online marketplace, online search engine or cloud computing service
…careful who your customers are
Access Partnership 2016
3535
Data Protection/Privacy
A single set of rules now apply across the EU
Fines of up to 4% global turnover
Extends the scope of EU data protection law to foreign companies processing data about EU residents.
clarified "right to be forgotten"
Access Partnership 2016
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Data Transfer – “free flow of data”
“Safe Harbour”: How do we transfer data now?
Data localisation
What about non-personal data?
Allocation of liability between providers and users to support Internet of Things
Access Partnership 2016
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Tsunami of Regulation?
Significant amount of new regulation agreed – two year implementation timeline
DSM presents opportunities and risks… …nothing is inevitable
Access Partnership 2016
Thank you
Access Partnership 2016
Broadway Studios20 Hammersmith BroadwayLondon, W6 7AFUK
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Washington DC
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London
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Africa
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Tel: +221 33 827 52 54Fax: +221 33 827 52 55
Brussels
Electronic Communications Regulatory Framework
European VOIP Summit – Tuesday 1 March 2016
Current Framework (and 2009 amends)
FRAMEWORK
- Creates the SM- Market reviews-‘Rights of way’ -Competition requirements
ACCESS & INTERCONNEC
TION
- Competitors’ access to networks- Interconnection between networks
AUTHORISATION
- Spectrum management and allocation/licensing
UNIVERSAL SERVICE
- universal service provisions- consumer rights-switching/porting
E-PRIVACY*
- cookies- email privacy- data protection
BETTER REGULATION DIRECTIVE CITIZENS’ RIGHTS DIRECTIVE
EECMA ( EU Regulatory Authority with ‘override power’ over NRAs)
BEREC Regulation (EU Agency - ‘collective’ of NRAs/evolved ERG)
Commission Challenges• Relatively little full infrastructure competition and the extent of upgrades to the highest capacity networks varies markedly;;
• Progress towards more integrated telecoms market is slow and the provision of connectivity to consumers and business remains highly divergent across the Union;;
• Significant difference remain with regard to approaches to spectrum governance and strategies to make spectrum available which cannot be justified solely by differing national circumstances;;
• Online service are increasingly seen by end-users as substitutes for traditional electronic communications services such as voice telephony, but are not subject to the same regulatory regime;;
• Technological and economic developments, such as fixed/mobile coverage, network virtualisation and shift to all IP networks, are likely to profoundly change the functioning of the electronic communications sector.
Commission Questions
• Do you think that traditional electronic communication services (such as voice or video telephony, SMS/text message, emails operated by telecoms providers, other services) can be functionally substituted by OTT services or platforms with communication elements(e.g. internet telephony services, web messaging services, webmail services, social media platforms, others)?
• Should all communication services which are functionally substitutable to existing ECS fall under a new common definition for such communications services?
Creating a level playing field?
UK View on OTT• The UK government would advocate taking a principled, light touch approach to the regulation of OTT services.
• We believe that to create a transparent and competitive market, the Commission should also consider deregulation of existing electronic communications services where this does not harm consumer interests, undermine regulatory enforcement powers, or compromise national security, public security or prevention, detection and prosecution of criminal offences.
UK Objectives A stable, but flexible, regulatory framework that can support investment and innovation and
accommodate changes in technology;;
Competition should be encouraged as the most effective way to deliver the desired outcomes and
communication providers need to be able to achieve a return on investment. However the
limitations of competitive markets need to be recognised;;
Communication networks that will meet the needs of users over the next decade to support
competitiveness, economic growth and deliver social benefits. The effectiveness of networks
needs to be judged by the quality of experience enjoyed, or suffered, by the user, be that the
individual consumer or business;;
Every citizen or consumer should have access to an acceptable level of connectivity providing an
acceptable level of quality of service
Consumer empowerment – transparency and awareness of services, Gainer Led Switching
Respects the principle of subsidiarity of Member States
Expected timetable
2nd half '16 - Proposals adopted by College and negotiations commence
1st half '18 - negotiations end and implementation begins
Mid '19 - Implementation deadline ? - the last of the MS implement
47
Best Practices in Mergers and Acquisitions
#VoIPSummit
481/03/2016The European VoIP Summit Gold Sponsors:
Best Practices in Mergers and Acquisitions
Michael QuinnFounding Partner – Q Advisors
© Copyright 2016 Q Advisors LLC · All Rights Reserved. | WWW.QLLC.COM
Member FINRA | SIPC
M&A IN THE CLOUD AND MANAGED SERVICES ARENAQ Advisors Presentation to the Cavell Group March 2016
Q Advisors OverviewSection I
51
Q Advisors Overview
• Founded in 2001 to provide financial advisory services
• Focused primarily on Communications, Technology and Media
• Most active managed cloud-based services bank in the industry, based on the number of active clients and deals closed
• Significant experience in structuring and negotiating M&A and financing transactions for private and public companies:
Sell-side and buy-side engagements
Debt and equity financings
Strategic financial advisory engagements
Global reach and capabilities
• Closed over 185 transactions since inception
Total transaction value of approximately $8.5 billion
Over 28 cross border deals
• Offices in Denver, CO and San Francisco, CA
• Team of 15 professionals
• Major-bracket experience coupled with boutique attention
Firm Profile TMT Experts
Cloud Contact Center Solutions
Unified Communications-as-
a-Service (“UCaaS”) / Managed Services
Managed SecurityManaged Network and Infrastructure
Digital Media / Ad Tech
Mobility Services & Applications
Internet of Things (“IoT”)
Collaboration / Conferencing
52
Select Q Advisors Cloud Transactions
ACQUIRED
buy-side advisor
ACQUIRED BY
sell-side advisor
ACQUIRED BY
sell-side advisor
ACQUIRED BY
sell-side advisor
ACQUIRED BY
sell-side advisor
ACQUIRED BY
sell-side advisor sell-side advisor
ACQUIRED BY ACQUIRED BY
sell-side advisor
ACQUIRED BY
sell-side advisor
ACQUIRED
buy-side advisor
M&A Market OverviewSection II
54
M&A Activity on the Rise
• Factors driving the accelerated activity include
Increased adoption of non-premise based solutions by high end SMBs and enterprise customers
Pressure on enterprises to cut capital expenditures
Desire for back up / security redundancy
Customer desire for “One Throat to Choke” or “One Back to Pat” for all communication needs
• Telecom M&A size, rather than volume, has grown over the past five years and is representative of the transformational natureof recent M&A activity
The aggregate deal value for the telecom sector grew from $152.2B in 2007 to $333.7B in 2015, indicating growth of almost 220% 1
The number of deals decreased from 1,925 deals in 2007 to 1,036 deals in 2015 1
• Most active M&A sectors in the telecommunications space include the following:
Hosted UCaaS
Cloud Contact Center Solutions
Managed Network
Security
Cloud Applications
Collaboration
Cloud Computing / IaaS
Over the past 24 months, global merger and acquisition activity in the Hosted UC, Collaboration, Managed and Cloud Services sector has accelerated rapidly
Source: 1) M&A Outlook Survey, KPMG
55
M&A Outlook 2016: Focus on Transformative Acquisitions
• Corporate buyers will continue seeking out transformative M&A related to their cloud strategy
– Enter new line of business
– Expand market presence to new geographic region / country
– Acquire core technology platform or solution
– Acquire customer base, often moving up market into mid-to-large enterprise segments
• Heightened expected activity from the Private Equity partner community in acquisitions across the cloud and managed services landscape
– Preference for recurring revenue model of technology-based businesses
– Often fund transformation of legacy revenue / customer base to cloud-based recurring model
• Traditional Telcos expected to augment existing solution portfolios through acquisitions of cloud platform companies
– Renewed effort to attract SMBs and enterprises through upsell of additional cloud-based managed services
– Proprietary technology often favored as core platform to build cloud and collaboration portfolio
– Bolt-on acquisitions for incremental cloud solutions, complementary customer base and/or expanded geographic reach
• Additional macro-economic factors fueling M&A into 2016 include:
– Buyers seeking inorganic growth given strong balance sheets, access to capital and slow but steady economic growth
– Foreign buyers driven to select U.S. markets and vice versa in select markets in Western Europe and Scandinavia
– Cash-rich consolidators
– Interest rates remain low
Telecom and Technology sectors expected to see the most deals in 2016 and beyond, driven by highly disruptive cloud technologies such as cloud voice, unified communications and applications
Source: 1) M&A Outlook Survey, KPMG
56
M&A Outlook 2016: Valuation Drivers
Strong Sales Channel
Unique Indirect Channel
Relationships
Wholesale / White Label Offerings
Sales Productivity
Quality of Service
Network and Quality (QoS)
Technology / Solution
Proprietary
Cloud Contact Center
SecurityStorageLifecycle
ManagementUCaaS
Collaboration
Integration with Third Party Platforms (via APIs)
RobustCapabilities
Rich Application Suite
Customization (Vertical Focus)
Multi-tenantRedundancyScalability
Tax, language and currency
capabilities
Enterprise Customer
Base
Size (Mid-Market & Enterprise)
Loyalty (Low Churn)
1. 2. 3. 4. 5.
Sales Presence in Key Markets
Automation (Self Service Portals)
Channel visibility into KPIs
Select company attributes that demand a market premium in 2016 and beyond
57
Acquirer Location Target Location Valuation
West Corp U.S. Magnetic North U.K 3.7x LTM Rev
Broadsoft U.S. PBXL Tokyo N/A
8x8 U.S. DXI Limited U.K. 2.1x LTM Rev
Enghouse Canada Reitek Italy N/A
NTT Tokyo Arkadin France 2.6x LTM Rev
NTT Tokyo Virtela U.S. 4.0x LTM Rev
Broadsoft U.S. Finocom Germany 3.6x LTM Rev
8x8 U.S. Voicenet U.K. 2.0X LTM Rev
M&A Outlook 2016: Accelerated Cross Border Activity
Telecom and Technology represent the most active sectors in terms of cross-border deal activity
U.S. Buyers Fueling Transactions1
U.S. and EU Most Active Relationship1
• Global, cross-border M&A activity is at an all time high, hitting a record setting quarterly growth rate in Q4 ’151
Strategic acquirers are paying a premium for expansion outside of domestic markets
Representative Transactions
Source: 1) Baker & Mckenzie
58
Market Rewards Shift to Managed Services
GTT Metrics 12/31/2011 12/31/2012 12/31/2013 12/31/2014 9/30/2015
LTM Revenue $91M $108M $158M $207M $317M
LTM EBITDA $8.4M $12.9M $22.9M $33.6M $55.6M
Significant increase in GTT Communication’s share price and relative valuation metrics has demonstrated market’s positive reaction to managed service-focused acquisitions
GTT Communications, Inc. (NYSE:GTT): Historical Valuation Multiples
Customer Demand Drives M&ASection III
60
Ability to “Move up the Stack” is Key to Success in the Cloud
ProfileØ Employees (1,000+)Ø MRR (>$5,000)Ø Multi-location offices / employees
ProfileØ Employees (100-999)Ø MRR (>$1,000)
ProfileØ Employees (<100)Ø MRR (<$1,000)
Managed Cloud Infrastructure
Managed Cloud Network
Managed Cloud Software / Applications
ServicesØ Cloud Voice & UCØ Cloud Contact CenterØ Conferencing and CollaborationØ Productivity & Vertical AppsØ Mobility
ServicesØ IaaSØ PaaS / MiddlewareØ Cloud Storage Ø Colocation
Ø Ability to move up the Target Market stack from SMB to mid-to-large enterprise will increase ARPU and reduce churn
Ø Ability to address needs higher up the cloud services stack is key to increased wallet share and creating a differentiated solution
Mid-to-Large Enterprise
SOHO / SMB
Large Enterprise
ServicesØ Cloud NetworkingØ MPLS/VPNØ Network Monitoring
Opportunity to address cloud needs higher up the cloud services and SMB / Enterprise stack to capture greater wallet share and recurring revenue streams
Managed Cloud Services Stack Target Market SMB / Enterprise Stack
61
SMB Supply / Demand Gap for Cloud and Mobility
SMB Supply Demand Gap
More services demanded by SMBs
than current offerings
More services supplied by channels than current
SMB demand
Source: 1) Techaisle
Cloud Solutions1 Mobility Solutions1
SMB demand is especially high for cloud solutions geared toward industry verticals, security, and storage
62
Addressing Service Offering Gaps Through Differentiation
Competitive Differentiators
VERTICAL EXPERTISE
Drivers
• Need to fully depreciate on-premise assets
• Cultural preference of firm• Concern about maturity of
cloud delivery for selected UC functions
• Based on functional or geographic segmentation
MOBILE CLOUD INFRASTRUCTUREHYBRID SOLUTIONS BROAD SOLUTION APPEAL
Drivers
• Users expect full UC functionality across all mobile platforms and operating systems, preferably through fixed mobile convergence (FMC)
• Consumerization of IT (BYOD)
• Multi-tenant PBX platforms designed specifically for mobile carriers (i.e. RingCentral and AT&T)
• True mobile cloud services are device and OS neutral
Drivers
• No single service provider who offers a full, scalable UCaaS and collaboration solution
• In addition to the basic integrated UC offerings, clients expect additional solutions including, but not limited to:‒ Mobile Client‒ APIs for integration‒ Business productivity
applications‒ Integration with business
software‒ Cloud contact center‒ Managed security‒ Storage‒ Managed network
applications
Drivers
• Expectation of service providers to provide expertise in both the technology and subject matter related to the selected industry
• Highly distributed organizations in professional verticals (i.e., retail, legal, medical, insurance, and real estate)
63
Market Valuation Drivers
What is more important: growth or profitability?
Depending on your particular sub-sector within cloud, you will trade on either a revenue multiple or an EBITDA multiple.
QA
64
Public Trading ComparablesTrading Multiples as of 2/23/2016;; (US$ in Millions) Growth
Comparable Companies TEVMarket Cap.
CY 2015Revenue
CY 2015 EBITDA
Gross Profit
EBITDAFWD
RevenueCY 2015Revenue
CY 2015 EBITDA
Managed Cloud Software and Applicat ions
Citrix Systems, Inc. $11,215.3 $10,761.6 $3,275.6 $844.0 85.2% 25.8 % 1.4 % 3.4x 13.3xWest Corporation $5,009.3 $1,791.5 $2,280.3 $651.8 57.4% 28.6 % 1.1 % 2.2x 7.7xRingCentral, Inc. $1,211.0 $1,329.5 $296.2 ($16.1) 70.5% (5.4)% 19.0 % 4.1x NMVonage Holdings Corporation $1,216.1 $1,065.6 $895.1 $93.2 66.9% 10.4 % 2.6 % 1.4x 13.0xEnghouse Systems Limited $972.4 $1,044.3 $292.7 $74.8 68.2% 25.6 % 17.3 % 3.3x 13.0xBroadSoft, Inc. $789.2 $870.9 $270.9 $58.4 70.8% 21.6 % 24.9 % 2.9x 13.5x8x8 Inc. $824.6 $979.2 $195.5 $4.3 73.0% 2.2 % 27.1 % 4.2x NMInteractive Intelligence Group Inc. $578.8 $619.8 $390.9 $10.2 60.7% 2.6 % 12.5 % 1.5x NMinContact, Inc. $523.7 $545.9 $222.0 ($1.5) 51.4% (0.7)% 17.4 % 2.4x NMFive9, Inc. $371.0 $383.8 $126.0 ($8.0) 51.8% (6.4)% 22.2 % 2.9x NM
Mean 65.6 % 10.4 % 14.6 % 2.8x 12.1xMedian 67.6 % 6.5 % 17.4 % 2.9x 13.0x
Managed Cloud Infrastructure
Cognizant Technology Solutions Corporation $30,772.9 $34,434.9 $12,420.6 $2,515.5 40.1% 20.3 % 12.2 % 2.5x 12.2xRackspace Hosting, Inc. $2,893.4 $2,719.5 $2,000.3 $673.1 66.2% 33.6 % 6.1 % 1.4x 4.3xInterxion Holding NV $2,678.4 $2,129.5 $412.3 $182.8 60.3% 44.3 % 14.1 % 6.5x 14.7xInternap Corporation $468.8 $110.3 $321.0 $80.8 47.2% 25.2 % (1.9)% 1.5x 5.8x
Mean 53.5 % 30.9 % 7.6 % 3.0x 9.2xMedian 53.7 % 29.4 % 9.1 % 2.0x 9.0x
Managed Cloud Network
Level 3 Communications, Inc. $27,594.3 $17,439.3 $8,247.4 $2,606.2 48.2% 31.6 % 2.9 % 3.3x 10.6xZayo Group Holdings, Inc. $9,247.9 $5,718.4 $1,442.6 $845.5 69.9% 58.6 % 23.5 % 6.4x 10.9xGTT Communications, Inc. $729.9 $522.4 $372.7 $75.8 42.8% 20.3 % 79.6 % 2.0x 9.6x
Sources: Capital IQ, SEC Filings, Press Releases and Q Advisors LLC Estimates Mean 53.6 % 36.8 % 35.3 % 3.9x 10.4xMedian 48.2 % 31.6 % 23.5 % 3.3x 10.6x
Operat ing Metrics Margins (LTM) TEV Mult iple
65
Recent M&A Trends and Activity (US$ in Millions)
Date Buyer TargetImplied TEV
LTM Revenue
LTM EBITDA
LTM Revenue
LTM EBITDA
Managed Cloud Software and Applicat ions02/14/2016 CallTower Inc. SoundConnect, LLC $6.7 $5.1 NA 1.3x NA02/07/2016 BroadSoft, Inc. Transera NA $7.8 NA NA NA12/21/2015 Momentum Telecom, Inc. Alteva, Inc. $21.7 $30.6 ($1.4) 0.7x NA12/09/2015 Interactive Intelligence Group Inc. Anveshan Techsolutions Private Ltd. NA NA NA NA NA12/01/2015 Marlin Equity Partners;; Presidio Partners LiveOps Cloud Platform NA NA NA NA NA10/31/2015 West Corporation Magnetic North $41.0 $11.1 $4.1 3.7x 10.0x09/01/2015 Vonage Holding Corporation iCore Networks, Inc. $92.0 $71.0 $7.0 1.3x 13.1x05/15/2015 Vonage Holding Corporation gUnify LLC NA NA NA NA NA05/01/2015 AdEPT Telecom plc Centrix Limited $15.9 $13.6 $3.8 1.2x 4.2x04/01/2015 Vonage Holding Corporation SimpleSignal, Inc. $25.3 $13.7 NA 1.8x NA03/03/2015 Enghouse Systems Limited CDRator A/S $18.5 $17.3 NA 1.1x NA12/15/2014 Vonage Holding Corporation Telesphere Networks $114.0 $40.0 NA 2.9x NA12/11/2014 BAE Systems Silver Sky $233.0 $75.2 NA 3.1x NA12/11/2014 CenturyLink, Inc. Cognilytics, Inc. NA NA NA NA NA10/31/2014 Fusion Telecommunications PingTone Communications $10.1 $8.1 $1.0 1.2x 10.1x10/09/2014 Apax Partners ExactTarget $764.0 $328.8 $47.1 2.3x 16.2x09/14/2014 Cognizant Technology Solutions TriZetto Corporation $2,700.0 $676.4 $190.0 4.0x 14.2x05/14/2014 Interactive Intelligence Group Inc. OrgSpan $14.3 NA NA NA NA05/06/2014 inContact, Inc. Uptivity Inc. $41.4 $21.1 $2.6 2.0x 16.0x04/21/2014 West Corporation Reliance Communications $76.5 $27.0 NA 2.8x NA01/27/2014 Spire Capital Partners Telekenex NA NA NA NA 6.0x01/21/2014 NTT Communications Arkadin $510.0 $200.0 NA 2.6x NA12/31/2013 Fusion Telecommunications Broadvox $32.1 $30.9 $5.4 1.0x 5.9x12/16/2013 BroadSoft, Inc. f inocom AG $9.0 $2.5 NA 3.6x NA12/03/2013 Premiere Global Services Via-Vox $52.4 $22.0 NA 2.4x NA12/02/2013 8x8 Inc. VoiceNet Solutions $18.4 $9.0 NA 2.0x NA11/15/2013 Vonage Holding Corporation Vocalocity Inc. $129.5 $44.5 NA 2.9x NA09/27/2013 WideOpenWest Networks Bluemile, Inc. $20.0 $8.9 $2.9 2.2x 6.9x09/04/2013 Premiere Global Services ACT Teleconferencing $44.0 $40.0 NA 1.1x NA08/12/2013 BroadSoft, Inc. Hosted IP Communications $26.3 $6.0 NA 4.4x NA
Sources: Capital IQ, SEC Filings, Press Releases and Q Advisors LLC Estimates Mean 2.2x 10.7xMedian 2.2x 10.1x
Operat ing Metrics TEV Mult iple
66
Recent M&A Trends and Activity (cont’d)(US$ in Millions)
Date Buyer TargetImplied TEV
LTM Revenue
LTM EBITDA
LTM Revenue
LTM EBITDA
Managed Cloud Infrastructure07/06/2015 Koninklijke KPN N.V. IS Group BV NA NA NA NA NA12/31/2013 Redcentric InTechnology Managed Services Limited $104.7 $62.1 $12.6 1.7x 8.3x05/07/2013 Telecom Corporation of New Zealand LimitedRevera Limited $82.7 $41.8 $10.9 2.0x 7.6x01/29/2013 Cogeco Cable Inc. Peer 1 Network Enterprises, Inc. $599.7 $141.4 $30.1 4.2x NA04/06/2012 Adapt Services eLINIA WebServices $20.7 $15.8 NA 1.3x NA03/17/2012 Taldor Computer Systems GlassHouse Technologies $174.9 $116.1 ($6.2) 1.5x NA
Mean 2.1x 8.0xMedian 1.7x 8.0x
Managed Cloud NetworkAnnounced Charter Communications, Inc. Time Warner Cable Inc. $77,468.6 $23,007.0 $7,956.0 3.3x 9.9x01/07/2016 Videotron Ltd. Fibrenoire Inc. $125.0 NA NA NA NA12/12/2015 Xplornet Communications Platinum Communications Corp. $9.5 $8.3 $1.5 1.1x 6.3x10/22/2015 GTT, Inc. One Source Networks, Inc. $175.0 $74.6 $13.9 2.3x 12.6x10/16/2015 Interoute Communications Limited Easynet Limited $617.8 $345.7 $58.7 1.8x 10.5x04/01/2015 GTT, Inc. Megapath, Managed Services Business $152.3 $124.0 $20.0 1.2x 7.6x12/23/2014 Telstra Corporation Limited Pacnet Limited $697.0 $472.0 $111.0 1.5x 6.3x11/18/2014 Koninklijke KPN N.V. Reggefiber Group B.V. $990.0 NA NA NA NA10/01/2014 GTT, Inc. UNSi $37.8 $55.0 NA 0.7x NA07/02/2014 Zayo Neo Telecoms SAS $78.9 $39.5 $7.3 2.0x 10.8x06/16/2014 Level 3 Communications, Inc. TW Telecom Inc. $7,491.4 $1,591.0 $518.3 4.7x 14.5x05/01/2014 Columbus Communications Lazus S.A.S $146.0 $33.0 $17.0 4.4x 8.6x04/21/2014 Birch Communications Cbeyond $326.5 $463.4 $71.0 0.7x 4.6x01/10/2014 NTT Communications Virtela Technology Services $525.0 $131.3 NA 4.0x NA12/31/2013 Time Warner Cable DukeNet Communications $600.0 N/A $60.0 NA 10.0x
4.7x 14.5x0.7x 4.6x
Sources: Capital IQ, SEC Filings, Press Releases and Q Advisors LLC Estimates Mean 2.3x 9.2xMedian 1.9x 9.9x
Operat ing Metrics TEV Mult iple
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1. Managed network providers acquiring software and application providers
– Masergy’s acquisition of Broadcore and Global DataGuard; recently looked at acquiring a proprietary cloud contact center solution
– NTT’s acquisitions of Arkadin and Virtela
– CenturyLink’s acquisition of Savvis
2. Non-traditional managed services players acquiring software and application providers:
– Ricoh’s recent acquisition of MindShift Technologies
– Mitel’s acquisition of Aastra Technologies
– ShoreTel's acquisition of M5 Networks
– Konica Minolta’s acquisition of All Covered
3. Managed software and application providers acquiring additional software services:
– West’s recent acquisition of Magnetic North, a proprietary cloud contact center solution
– Vonage’s recent acquisitions of Vocalocity, Telesphere, iCore SimpleSignal and GUnify, all cloud business voice and UC application providers
Masergy’s Cloud Strategy
NTT’s Cloud Strategy
Recent M&A Strategies: Moving up the Cloud Services Stack
2012 – Broadcore: added core platform to grow cloud voice services and UC2015 – Global DataGuard added managed security software solution 2015 – Recently looked at acquiring cloud contact center technology
Description: Global MPLS and managed network provider serving global enterprisesStrategy: To become one-stop solution provider for enterprise communications
2014 – Virtela: added core platform and network to grow cloud services in the U.S. and globally2015 – Arkadin: added rich collaboration suite of services
Description: Japan-based traditional data and network servicesStrategy: Aggressively acquiring up-market solutions in Europe and the U.S. to capture growing business cloud market
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Valuation Drivers
• ARPU
Bigger is Better
Ability to upsell additional services Larger clients typically have less churn
Higher ARPUs allow buyers to use increased leverage
• Proprietary Platform vs. Reseller Model
Positioning yourself as a tech company vs. a services company• Contracted Revenue
Longer contracts are more valuable
Customer tenure shows Quality of Service• Number of Services Sold to Embedded Customer Base
Avoids being a one trick pony
Cross-sell opportunities for acquirers• Churn
• Sales Channel
Direct
Channel % of Residual
• Geographic Reach
Ability to serve multi-locations customers
As companies think about preparing for sale or acquiring a complimentary target, the following valuation drivers should be considered
69
Know your strengths and weaknesses and prepare a story around each
Best Offense is a Good Defense
Growth
Size
Churn
Metrics
Geographic
Reach
EBITDA
Margin
Gross
Margin
Target
Market
ARPU
Customer
Concentration
Bookings
Trends
70
One Size Does Not Fit All Purchasers
Size and Location of Customer Base
One Source’s appeal to GTT was due to multi-location, enterprise customer base
Magnetic North filled a product hole for West
Ability to Leverage Sales Channel of
Acquirer
Simple Signal provided Vonage with a strong indirect
channel
Market leading premiums require a differentiator or a
perfect fit with a buyer White paper for each Buyer
Proprietary Delivery Scheme
OSS
Provisioning
Not all Revenue and EBITDA Will be Treated with Same Multiple
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Most Active Cloud and Managed Services Acquirers
Equipment ProvidersConsolidators Solution Providers
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Market Rewards Transition to Commercial Cloud UC & Collab
Date 6/13 12/13 6/14 12/14 6/15 12/15
LTM Revenue 0.7x 0.8x 1.0x 1.0x 1.3x 1.6x
LTM EBITDA 5.0x 7.5x 12.5x 11.4x 12.7x 15.2x
Share Price1 $2.83 $3.33 $3.75 $3.81 $4.91 $5.87
Source: CapitalIQ and SEC Filings (1) Share price as of the last trading day of the month
Significant increase in Vonage’s share price and relative valuation
metrics has demonstrated
market’s positive reaction to its shift
“up market” to higher-end SMB and enterprise accounts as
well as its ability to offer richer and more
complex cloud services
Vonage Holdings Corporation (NYSE:VG)
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
18.00
0.50
0.70
0.90
1.10
1.30
1.50
1.70
1.90
EBITDA M
ULTIPLE
REVENUE MULTIPLE
Pure Residential
How to Prepare Yourself for a SaleSection IV
74
Preparing for a Process – Part I
Customers
• Review major customer contacts ahead of any process
• Identify potential renewal opportunities in order to reduce the number of customers out of term or on a month-to-month basis
• Mitigate potential price compression or loss of a material customer during due diligence
• Goal to maximize future revenue under contract, and reduce the perceived risk of churn / revenue loss post-deal
ü Identify any customer concentration
ü Longstanding customer relationships and revenue under contract will maximize value
Financial
• Identify specific areas of cost savings, synergies available post-transaction, and their effect on pro-forma profitability
• Review commitments for facilities, office space, and network related locations to determine transferability and / or long-term need
• Prepare a detailed contracted revenue waterfall analysis if it is a strong selling point for the Company
• Obtain clear understanding of tax liabilities and how they will be funded
ü Maintain steady growth in revenue
ü Reduce network costs
ü Strengthen operating margins
Checklist Value Realized
75
Preparing for a Process – Part II
Sales
• Identify key sales agents and partners, and assess the transferability of the relationship and contractual terms
• Highlight trends in the Company’s sales pipeline, including the near-term opportunity to up-sell or cross-sell additional products into a growing customer base
ü Identify key third-party sales accounts
ü Ability to define and meet realistic sales goals throughout a process
Data Room
• Make sure all licenses with vendors are up-to-date
• Ensure all interconnection and telecom contracts are in force and executed
• Understand consents needed from contract counterparties
ü Facilitates clean representations and warranties
ü Reduces escrow amount and holdback periods
Checklist Value Realized
76
How to Prepare Yourself for a Sale (cont’d)
Don’t bury your head in the sand…..
1. Enhance / Align current cloud offerings with needs of SMBs and enterprises, either organically or through acquisitions
2. Track and measure KPIs over time and gauge impact of incremental investments
3. Know your strengths and weaknesses and prepare a story around each
No better time than now to:
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M&A IN THE CLOUD AND MANAGED SERVICES ARENAQ Advisors Presentation to the Cavell Group March 2016
78
Coffee/Tea Break#VoIPSummit
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Future of the Voice Market#VoIPSummit
Panelists
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Simon BurckhardtMD EMEA
Mike WilkinsonVP Market Offers
Frank BlaauwSenior Manager Voice
Business Services
Guy MillerDirector of Next Generation
Voice Services 1/03/2016The European VoIP Summit Gold Sponsors:
Moderator: Dominic BlackSenior Market Analyst
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Closing Remarks#VoIPSummit
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