TECHNOLOGY SERVICES MONTHLY:
1717 Arch Street, 39th Floor · Philadelphia, PA 19103 · www.mhhco.com
August 2017
Regulation Technology (“RegTech”)
Cover Source: https://eclipse2017.nasa.gov/
MHH | Technology Services Group 2
Welcome to the August edition of the Mufson Howe Hunter TechnologyServices Monthly. This month, we focus on the Regulation Technology(“RegTech”). Each month, our team aims to provide you with a newsletterthat contains thought-provoking content and analysis, as well as updateson macroeconomic themes, equity capital market performance, privatecapital market trends and noteworthy M&A activity–all of which is relevantto our core industry sectors:
Our Technology Services practice serves growth-oriented, rapidly scalablebusinesses that leverage proprietary and enabling technologies to addressthe evolving needs of modern enterprise customers. We apply deepindustry expertise and broad transaction experience to provide thoughtful,tailored advice and solutions for our clients. Our clients turn to us foroutstanding M&A advisory and capital-raising execution.
We hope you find this information valuable, and we welcome anycomments or suggestions.
Sincerely,
Brandon K. EckManaging Director, Head of Technology Services
Cloud Services Healthcare IT Infrastructure Services Specialty Consulting
Digital Agencies Information Services IT OutsourcingTech-Enabled Business
Process Outsourcing
Tech-Enabled Solutions
InternetOutsourcing
ServicesMobile
Enterprise Software
Welcome to the MHH Technology Services Newsletter!
Select 2017 Franchise Themes
Cloud Brokerage Services & Cloud Enablement: The convergence of IT services,outsourcing, hosting, managed services and cloud business models continues tocause significant change in sourcing strategies. This will benefit IT Outsourcers thatembrace flexible pricing strategies, including the delivery of offerings "as a service.”It will also drive demand for third-party outsourced tools and services.
Offshore Providers’ Transformation: The current political landscape and increasingclient demand for more automated and agile solutions is driving offshore providers toincrease their functional capabilities in cloud-based services that augment anddifferentiate existing delivery models. According to Information Services Group (ISG),As-a-Service annual contract value now represents 36% of the combined global marketfor sourcing services, nearly double early 2014 (ISG, 2016).
IoT-Optimized Infrastructure Services: “Connected things” will streamline vendoroperational models while reducing customer costs. IoT will introduce even more usefuldata to the cloud that needs to be captured and effectively managed. IaaS and PaaScompanies will be a direct beneficiary of this trend. Cisco expects database, analyticsand IoT workloads to account for 22% of the total workloads by 2020 (Cisco, 2016).
Healthcare Consumerism & Patient Engagement: The rising costs of healthcarepremiums and increased out-of-pocket consumer spend from rising deductibles areshifting healthcare consumer behaviors toward a more cost-conscious mentality. Inturn, payors and providers continue to focus on patient engagement-relatedtechnologies that improve the digital consumer experience.
What we are reading…
Population Health Management: Population health management continues to be atop priority for healthcare organizations, as the overall responsibility for keeping apopulation of patients healthy shifts to the provider. This, coupled with the economicmotivation of the risk-based, value-driven reimbursement model, is driving providerdemand for more actionable data about the patients they serve and data relating totheir post-acute care.
How the World’s Biggest Buyout Deal Crashed and Burned
The Real Reason ISPs Hate Net Neutrality Regulation
Why bitcoin and its digital cousins are under increasing scrutiny
How Oracle Engineered Its Sales Staff for the Cloud
3 Trends in Healthcare Technology That You Need to Know About
TECHNOLOGY SERVICES MONTHLY
MHH | Technology Services Group 3
The Mufson Howe Hunter Technology Services Group serves growth-oriented, rapidly scalable businesses that leverage proprietary and enabling technologies to address the evolving needs of modern enterprise customers. We apply deep industry expertise and broad transaction experience to provide thoughtful, tailored
advice and solutions for our clients. Our clients turn to us for outstanding M&A advisory and capital-raising execution.
Brandon EckManaging Director,Head of Technology Services
Prior Experience:
Managing Director, Head of Technology & Services, Janney Montgomery Scott
Principal, Katalyst Securities
Principal, RCW Mirus
215.399.5411 [email protected]
18+ Years of Experience
60+ Transactions Completed
Education:
Gettysburg College (BA)
Senior Banking Team Sector Coverage
Andrew WilsonVice President,Technology Services
Prior Experience:
Senior Associate, Technology & Services, Janney Montgomery Scott
Associate, TMT, J.P. Morgan
Attorney, M&A, Wilson Sonsini Goodrich & Rosati
215.399.5406 [email protected]
8+ Years of Experience
20+ Transactions Completed
Education:
Duke University (JD, MBA)
U. North Carolina, Chapel Hill (BA)
Sell-side Advisory
Buy-side Assignments
Private Placements
Recapitalizations
Financial Advisory
Fairness Opinions
Tech-Enabled Solutions
Internet
Outsourcing Services
Mobile
Enterprise Software
IT Outsourcing
Healthcare IT
Digital Agencies
SpecialtyConsulting
InformationServices
InfrastructureServices
Tech-Enabled BPO
Cloud Services
TECHNOLOGY SERVICES PRACTICE OVERVIEW
Business Model Coverage
MHH | Technology Services Group 4
REGULATION TECHNOLOGYWhat is RegTech?
Regulation Technology addresses regulatory- and compliance-related challenges with
industry-specific technology solutions for financial services, healthcare, government,
information security and environmental protection businesses. For example, financial
services-focused reg-tech vendors provide solutions that help customers manage
enterprise risk, data reporting, as well as FATCA, Tax and AML/KYC compliance.
Financial Services RegTech. The rapid proliferation of new and increasingly complex
regulations are driving robust demand for RegTech solutions in the financial services
sector (e.g., investment banks, wealth managers and hedge funds).
RegTech to date has been focused on the digitization of manual reporting and
compliance processes; for example, in the context of know-your-customer (KYC)
requirements.
However, the potential of RegTech is far greater – it has the potential to enable a
close to real-time and proportionate regulatory regime that identifies and
addresses risk while also facilitating far more efficient regulatory compliance.1
Macro trends enabling RegTech
Increased regulatory burdens – Increased regulation isn’t just a temporarychallenge for global financial institutions – it’s the new reality.
1Outdated legacy technology – 3 of the top 4 concerns of corporate executivesare related to technology, including the ability to scale with the pace ofregulation and the ability to meet impending requirements
3
Increased cost of compliance – Organizations expect to commit an increasedamount of resources (time/staff) to processing compliance policies andprocedures.
2
Source: Moody’s Analytics, Risk Management: The Decade Ahead
A high proportion of boards predicting a ‘significant increase’ in compliance spending:
North America Europe Middle East
60% 75% 80%
North America Europe Middle East
Source: Deloitte, Global Risk Management Survey, 10th Edition
Source: Thomson Reuters, Top 5 Compliance Trends Around the Globe in 2016
Financial services firms’ average costs to meet their obligations are $60million; some are spending up to $500 million on compliance with KYCand Customer Due Diligence (CDD).
1: Arner, Douglas W. and Barberis, Janos Nathan and Buckley, Ross P., FinTech, RegTech and the Reconceptualization of Financial Regulation
Technology adaptability to changing
regulatory requirements
Legacy systems and antiquated architecture
or end-of-life systems
Inability to respond to time-sensitive and ad-
hoc requests
Lack of flexibility to extend the current
systems
Lack of integration among systems
Lack of cross-asset-class risk calculations
Lack of product and asset class coverage
Lack of aggregation of trading and banking
books 13%
22%
25%
44%
48%
49%
51%
52%
MHH | Technology Services Group 5
Recent Relevant Investments
Source: CBInsights
Acq
uir
or
Targ
et
Dec-2015 Mar-2015Oct-2016 Aug-2015
De
scri
pti
on • PE Growth
• Governance, risk and compliance (GRC) management software
July-2017
• Later Stage VC• Provides compliance,
risk and anti-fraud service
• Early Stage VC• Corporate compliance
management services
Jan-2017
• Later Stage VC• Develops a cloud
based compliance management software
• PE Growth• Risk management
software and services
• Later Stage VC• Cloud-based vendor
management application security services
May-2015
• Later Stage VC• Enterprise regulatory
software designed to manage client onboarding lifecycle
Dec-2016
• Early Stage VC• Platform for digital
compliance and risk management solutions
REGULATION TECHNOLOGYRegTech Quarterly Global VC ActivityValue Drivers
RegTech will provide operational efficiencies and cost benefits whenapplied to current compliance and risk management practices. Adopterswill see this through:
1) Reduced cost of compliance – RegTech simplifies and standardizes thecompliance process through automated mapping of regulatory riskto key business processes, reducing the need for manual or duplicatechecks.
2) Sustainable and scalable solutions – RegTech allows for flexibility asbusiness and regulatory needs change. Firms can move away fromrigid enterprise risk management systems once the adopted RegTechsolutions are stable.
3) Advanced data analytics – RegTech allows regulatory information tobe analyzed in various ways, including scenario analytics and horizonscanning for new regulations which enables firms to proactivelyidentify risks and issues.
4) Positive customer experience – RegTech will help to drive positivecustomer experiences. For example, a streamlined client life cycleprocess could lead to an improved client experience.
-
$50M
$100M
$150M
$200M
$250M
$300M
$350M
$400M
$450M
-
5
10
15
20
25
30
35
40
1Q
14
2Q
14
3Q
14
4Q
14
1Q
15
2Q
15
3Q
15
4Q
15
1Q
16
2Q
16
3Q
16
4Q
16
1Q
17
Total CapitalNumber of Deals
Deal Count Disclosed Funding ($M)
MHH | Technology Services Group 6
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
Jul-14 Nov-14 Mar-15 Jul-15 Nov-15 Mar-16 Jul-16 Nov-16 Mar-17 Jul-17
S&P 500 NASDAQ Dow Jones Industrial Average
U.S. PPI, CPI and PCE
10-Year Treasury Rate
U.S. Unemployment & Labor
U.S. Market Indices
Sources: CapitalIQ , Federal Reserve Bank of St. Louis
U.S. ECONOMIC INDICATORS
Unemployment Rate
Labor Participation Rate
SP500 NSDQ DJIA
July 1.9% 3.4% 2.5%
LTM 13.6% 23.0% 18.8%
3-Year 28.0% 45.3% 32.2%
-3.0%
-2.5%
-2.0%
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
Jun-14 Oct-14 Feb-15 Jun-15 Oct-15 Feb-16 Jun-16 Oct-16 Feb-17 Jun-17
Consumer Pri ce Index Producer Price Index Personal Consumption Expendit ures
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
Jul-14 Nov-14 Mar-15 Jul-15 Nov-15 Mar-16 Jul-16 Nov-16 Mar-17 Jul-17
10-Year Teasury Rate
62.0%
62.2%
62.4%
62.6%
62.8%
63.0%
63.2%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
Jul-14 Nov-14 Mar-15 Jul-15 Nov-15 Mar-16 Jul-16 Nov-16 Mar-17 Jul-17
Unemployment Rate Labor Participation Rate
MHH | Technology Services Group 7
Source: Pitchbook*For deals with announced transaction value**Please contact the MHH Technology Services Group directly for any information regarding valuation and deal size
U.S. TECH SERVICES MIDDLE-MARKET PRIVATE EQUITY: BUY-OUT ACTIVITYSelect July 2017 Buy-Outs** PE Buy-Outs, Trailing 8 Quarters, as of July 31
PE Buy-Outs, by Deal Size PE Buy-Outs, Historical Annual, as of July 31
Company Investor Date Sector
July 20 IT Outsourcing
July 14 BPO
July 13Information
Services
July 12 IT Outsourcing
July 5 IT Outsourcing
July 5 IT Outsourcing
$0.0B
$0.2B
$0.4B
$0.6B
$0.8B
$1.0B
$1.2B
-
20
40
60
80
100
120
140
4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17
Total CapitalNumber of Deals
Add-Ons Platform Total Capital Invested*
38%
15%15%
33%$0-25mm
$25-50mm
$50-100mm
$100-250mm
$0.0B
$0.5B
$1.0B
$1.5B
$2.0B
$2.5B
$3.0B
$3.5B
$4.0B
$4.5B
-
50
100
150
200
250
300
350
400
450
500
2010 2011 2012 2013 2014 2015 2016 2017
Total CapitalNumber of Deals
Deal Count Total Capital Invested*
MHH | Technology Services Group 8
Company Stage Date Sector
Angel / Seed July 25Information
Services
Early Stage VC
July 24Infrastructure
Services
Angel July 19 Healthcare IT
Angel / Seed July 17 Healthcare IT
Later Stage VC
July 11 IT Outsourcing
Later Stage VC
July 10Information
Services
U.S. TECH SERVICES MIDDLE-MARKET PRIVATE EQUITY: MINORITY ACTIVITYSelect July 2017 Minority Deals** PE Minority, Trailing 8 Quarters, as of July 30
PE Minority, by Stage PE Minority, Historical Annual, as of July 30
Source: Pitchbook*For deals with announced transaction value**Please contact the MHH Technology Services Group directly for any information regarding valuation, deal size, and investors
$0.0B
$0.5B
$1.0B
$1.5B
$2.0B
$2.5B
-
50
100
150
200
250
300
4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17
Total CapitalNumber of Deals
Deal Count Total Capital Invested*
$0.0B
$1.0B
$2.0B
$3.0B
$4.0B
$5.0B
$6.0B
$7.0B
$8.0B
0
200
400
600
800
1,000
1,200
2010 2011 2012 2013 2014 2015 2016 2017
Total CapitalNumber of Deals
Deal Count Total Capital Invested*
49%
26%
18%
7%
Angel / Seed
Early Stage VC
Later Stage VC
PE Growth/Expansion
MHH | Technology Services Group 9
d
Source: CapitalIQ
VALUATION & PERFORMANCE METRICS
Median Operational KPIs
Median Valuation Metrics
IT Outsourcing: technology services and consulting solutions, including engineering, application development, knowledge management and business process management
Business Process Outsourcing: services for administering and managing select technology-enabled business processes, including outsourced product development, finance and accounting, human resources, research and analytics, and other industry-specific processes
Infrastructure Services: providers of managed, hosting and consulting services around planning, designing, implementing and managing mission-critical IT infrastructure
Information Services: providers of independent rating, benchmarking, research and data analytic services
Healthcare IT: software and technology-related services focused on the design, development, creation, use and maintenance of information systems for the healthcare industry
ITO
BPO
IFS
IS
HIT
Sector Indices Performance, as of July 31, 2017
10.4x
13.7x
11.6x
16.1x
14.1x
ITO BPO IFS IS HIT
EV/2017E EBITDA
16.2x
25.5x23.9x 24.1x 25.0x
ITO BPO IFS IS HIT
FWD PRICE/EARNINGS
2.1x 2.5x
4.1x
6.6x
3.4x
ITO BPO IFS IS HIT
EV/2017E REVENUE
9.3%
6.7%
16.1%
16.0%
8.7%
HIT
IS
IFS
BPO
ITO
2017E REVENUE GROWTH
58.2%
62.5%
64.5%
39.2%
32.2%
HIT
IS
IFS
BPO
ITO
LTM GROSS MARGIN
11.8%
40.5%
24.5%
14.3%
18.3%
HIT
IS
IFS
BPO
ITO
LTM EBITDA MARGIN
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
Jul-14 Nov-14 Mar-15 Jul-15 Nov-15 Mar-16 Jul-16 Nov-16 Mar-17 Jul-17
SP500 NSDQ ITO BPO IFS IS HIT
July 1.9% 3.4% 5.7% 12.6% 5.1% 4.8% (0.8%)
LTM 13.6% 23.0% 13.2% 28.1% 24.6% 21.3% 9.4%
3-Year 28.0% 45.3% 34.6% 55.4% 74.4% 73.7% 15.4%
MHH | Technology Services Group 10
Valuation Metrics Relative Valuation
Select July 2017 Precedent Transactions*
Source: CapitalIQ*Please contact the MHH Technology Services Group directly for any information regarding valuation and deal size
Announced Acquirer Target Description
July 28 Information security consultancy services
July 27 Information and communication technology
solutions
July 18 Integrated communication systems
July 12 Digital optimization consultancy and services
July 3 IT operations and maintenance services
IT OUTSOURCING
($ in millions) Operating Metrics Valuation Multiples
LTM LTM
Market Revenue Gross EBITDA(2) EBITDA EV / Revenue EV / EBITDA
Company Cap (1) 2017E 2018E Margin 2017E 2018E Margin LTM 2017E 2018E LTM 2017E 2018E
Accenture plc (ACN) $79,609 $35,233 $37,549 31.6% $5,980 $6,391 17.0% 2.3x 2.2x 2.0x 11.7 x 12.9 x 12.0 x
Cognizant Technology Solutions Corporation (CTSH) $40,829 $14,799 $16,158 39.1% $2,941 $3,423 19.6% 2.7x 2.6x 2.3x 12.7 x 12.8 x 11.0 x
Infosys Limited (INFY) $35,998 $10,917 $11,601 35.4% $2,910 $3,061 27.1% 3.0x 2.8x 2.7x 10.9 x 10.6 x 10.1 x
HCL Technologies Limited (HCLTECH) $19,845 $7,894 $8,333 33.7% $1,795 $1,818 22.4% 2.6x 2.3x 2.2x 11.5 x 10.3 x 10.2 x
Wipro Limited (WIT) $21,782 $8,679 $8,839 28.8% $1,795 $1,669 19.8% 2.1x 2.1x 2.1x 10.7 x 10.2 x 11.0 x
CGI Group Inc. (GIB.A) $15,355 $8,680 $8,918 30.1% $1,564 $1,657 16.8% 2.0x 1.9x 1.9x 11.0 x 10.6 x 10.0 x
Atos SE (ATO) $15,951 $15,034 $15,316 13.9% $1,963 $2,053 13.3% 1.2x 1.1x 1.1x 8.3 x 8.2 x 7.9 x
Syntel, Inc. (SYNT) $1,631 $884 $887 38.0% $219 $226 26.7% 2.1x 2.2x 2.2x 7.5 x 8.9 x 8.6 x
Virtusa Corporation (VRTU) $970 $933 $1,013 28.0% $64 $93 6.0% 1.2x 1.1x 1.0x 13.9 x 16.1 x 11.0 x
Perficient, Inc. (PRFT) $673 $494 $530 32.8% $71 $83 10.5% 1.5x 1.4x 1.3x 11.4 x 9.8 x 8.4 x
Mean $23,264 $10,355 $10,914 31.1% $1,930 $2,047 17.9% 2.1x 2.0x 1.9x 11.0x 11.0x 10.0x
Median $17,898 $8,680 $8,878 32.2% $1,795 $1,743 18.3% 2.1x 2.1x 2.1x 11.2x 10.4x 10.1x
NA = Not Available; NM = Not Meaningful; LTM = Latest Twelve Months As of close July 31, 2017.
‡ = excluded from Mean and Median calculations Excludes non-recurring, discontinued operations and stock-based compensation
Source: Public Filings, Press Releases and Published Research Reports
(1)
(2)
ACN CTSH
INFY
HCLTECH
WIT
GIB.A
ATOSYNT
VRTU
PRFT
0.0 x
2.0 x
4.0 x
6.0 x
8.0 x
10.0 x
12.0 x
14.0 x
16.0 x
18.0 x
-20.0% -10.0% 0.0% 10.0% 20.0% 30.0%
EV/EBITDA (2017E)
Revenue Growth (2017E)
ACN
CTSH INFY
HCLTECH
WIT
GIB.A
ATO
SYNT
VRTU
PRFT
0.0 x
0.5 x
1.0 x
1.5 x
2.0 x
2.5 x
3.0 x
0.0% 10.0% 20.0% 30.0% 40.0% 50.0%
EV/Revenue (2017E)
Revenue Growth (2017E) + EBITDA Margin (LTM)
MHH | Technology Services Group 11
3.
Valuation Metrics
Select July 2017 Precedent Transactions*
BUSINESS PROCESS OUTSOURCING
Announced Acquirer Target Description
July 31 Engineering, IT and staffing solutions worldwide
July 26 Outsourced finance and accounting services
July 19 Online career and job management services
July 12 . Aged support connectivity platform
July 10 Employee benefit consulting services
Source: CapitalIQ*Please contact the MHH Technology Services Group directly for any information regarding valuation and deal size
Relative Valuation
($ in millions) Operating Metrics Valuation Multiples
LTM LTM
Market Revenue Gross EBITDA(2) EBITDA EV / Revenue EV / EBITDA
Company Cap (1) 2017E 2018E Margin 2017E 2018E Margin LTM 2017E 2018E LTM 2017E 2018E
Automatic Data Processing, Inc. (ADP) $53,202 $12,676 $13,407 43.1% $2,648 $2,895 22.0% 4.2x 4.1x 3.9x 18.3 x 19.8 x 18.1 x
Genpact Limited (G) $5,590 $2,693 $2,870 39.2% $459 $497 16.3% 2.4x 2.3x 2.2x 13.9 x 13.7 x 12.7 x
EPAM Systems, Inc. (EPAM) $4,455 $1,430 $1,725 36.5% $256 $317 14.3% 3.2x 2.9x 2.4x 17.2 x 15.9 x 12.9 x
Luxoft Holding, Inc. (LXFT) $2,105 $904 $1,092 39.5% $155 $195 12.3% 2.5x 2.2x 1.8x 15.9 x 12.9 x 10.2 x
ExlService Holdings, Inc. (EXLS) $1,942 $757 $829 34.3% $129 $150 14.0% 2.4x 2.3x 2.1x 14.4 x 13.5 x 11.7 x
WNS (Holdings) Limited (WNS) $1,746 $679 $760 32.3% $133 $166 13.6% 2.6x 2.5x 2.2x 15.1 x 12.5 x 10.1 x
Globant S.A. (GLOB) $1,596 $391 $471 39.3% $65 $83 16.7% 4.6x 4.0x 3.3x 25.7 x 23.8 x 18.7 x
Mean $10,091 $2,790 $3,022 37.7% $549 $615 15.6% 3.1x 2.9x 2.6x 17.2x 16.0x 13.5x
Median $2,105 $904 $1,092 39.2% $155 $195 14.3% 2.6x 2.5x 2.2x 15.9x 13.7x 12.7x
NA = Not Available; NM = Not Meaningful; LTM = Latest Twelve Months As of close July 31, 2017.
‡ = excluded from Mean and Median calculations Excludes non-recurring, discontinued operations and stock-based compensation
Source: Public Filings, Press Releases and Published Research Reports
(1)
(2)
ADP
G
EPAM
LXFT EXLS WNS
GLOB
0.0 x
5.0 x
10.0 x
15.0 x
20.0 x
25.0 x
30.0 x
0.0% 5.0% 10.0% 15.0% 20.0% 25.0%
EV/EBITDA (2017E)
Revenue Growth (2017E)
ADP
G
EPAM
LXFT EXLS WNS
GLOB
0.0 x
0.5 x
1.0 x
1.5 x
2.0 x
2.5 x
3.0 x
3.5 x
4.0 x
4.5 x
0.0% 10.0% 20.0% 30.0% 40.0% 50.0%
EV/Revenue (2017E)
Revenue Growth (2017E) + EBITDA Margin (LTM)
MHH | Technology Services Group 12
Valuation Metrics
Select July 2017 Precedent Transactions*
INFRASTRUCTURE SERVICES
Source: CapitalIQ*Please contact the MHH Technology Services Group directly for any information regarding valuation and deal size**Excluded: WIX
Announced Acquirer Target Description
July 27 Infrastructure-as-a-service (IaaS) solutions
July 20 IT hardware, maintenance and systems
integration solutions
July 18 Managed hosting solutions to data centers
July 13 Network security technology and threat
detection services
July 10 Technology solutions and data center
environments
Relative Valuation**
($ in millions) Operating Metrics Valuation Multiples
LTM LTM
Market Revenue Gross EBITDA(2) EBITDA EV / Revenue EV / EBITDA
Company Cap (1) 2017E 2018E Margin 2017E 2018E Margin LTM 2017E 2018E LTM 2017E 2018E
Equinix, Inc. (EQIX) $35,117 $4,323 $4,938 50.4% $2,036 $2,401 42.0% 10.1x 9.1x 8.0x 21.9 x 19.3 x 16.4 x
United Internet AG (UTDI) $12,072 $5,003 $5,353 34.4% $1,110 $1,219 21.3% 3.2x 2.8x 2.6x 15.1 x 12.4 x 11.3 x
Zayo Group Holdings, Inc. (ZAYO) $8,058 $2,497 $2,674 64.7% $1,249 $1,356 45.2% 6.5x 5.4x 5.0x 12.7 x 10.8 x 9.9 x
VeriSign, Inc. (VRSN) $10,109 $1,161 $1,202 82.9% $810 $851 65.0% 8.8x 8.8x 8.5x 12.7 x 12.6 x 11.9 x
DuPont Fabros Technology, Inc. (DFT) $4,830 $580 $653 66.7% $360 $409 61.2% 13.3x 12.5x 11.1x 21.2 x 20.1 x 17.7 x
GoDaddy Inc. (GDDY) $3,948 $2,221 $2,543 64.4% $532 $668 11.8% 2.2x 2.0x 1.8x 14.6 x 8.4 x 6.7 x
Endurance International Group Holdings, Inc. (EIGI) $1,320 $1,169 $1,193 50.2% $331 $338 24.0% 2.8x 2.8x 2.7x 9.5 x 9.8 x 9.6 x
Wix.com Ltd. (WIX) $2,805 $423 $556 84.1% $77 $134 -10.9% 7.4x 6.2x 4.7x NM 34.2 x 19.5 x
Web.com Group, Inc. (WEB) $1,016 $755 $788 68.8% $192 $208 20.1% 2.2x 2.2x 2.1x 9.6 x 8.7 x 8.0 x
Internap Corporation (INAP) $304 $282 $280 49.6% $88 $91 24.5% 2.2x 2.2x 2.2x 8.5 x 7.1 x 6.8 x
Mean $7,958 $1,841 $2,018 61.6% $678 $768 35.0% 5.9x 5.4x 4.9x 14.0x 14.3x 11.8x
Median $4,389 $1,165 $1,197 64.5% $446 $538 24.5% 4.9x 4.1x 3.7x 12.7x 11.6x 10.6x
NA = Not Available; NM = Not Meaningful; LTM = Latest Twelve Months As of close July 31, 2017.
‡ = excluded from Mean and Median calculations Excludes non-recurring, discontinued operations and stock-based compensation
Source: Public Filings, Press Releases and Published Research Reports
(1)
(2)
EQIX
UTDI ZAYO
VRSN
DFT
GDDY
EIGI WEB
INAP
0.0 x
5.0 x
10.0 x
15.0 x
20.0 x
25.0 x
-10.0% 0.0% 10.0% 20.0% 30.0%
EV/EBITDA (2017E)
Revenue Growth (2017E)
EQIX
UTDI
ZAYO
VRSN
DFT
GDDY
EIGI
WEB
INAP
0.0 x
2.0 x
4.0 x
6.0 x
8.0 x
10.0 x
12.0 x
14.0 x
0.0% 20.0% 40.0% 60.0% 80.0%
EV/Revenue (2017E)
Revenue Growth (2017E) + EBITDA Margin (LTM)
MHH | Technology Services Group 13
TECHNOLOGY SERVICES: INFORMATION SERVICES
Valuation Metrics
Select July 2017 Precedent Transactions*
INFORMATION SERVICES
Source: CapitalIQ*Please contact the MHH Technology Services Group directly for any information regarding valuation and deal size**Gartner (IT) y/y growth rate pro forma adjusted for the acquisition of CEB, Inc.
Announced Acquirer Target Description
July 27 Merchant risk intelligence solutions
July 25 Market surveillance and compliance monitoring
solutions
July 17 Software solutions for real-time fraud
prevention, predictive analytics, etc.
July 10 IP management solutions
July
Relative Valuation**
($ in millions) Operating Metrics Valuation Multiples
LTM LTM
Market Revenue Gross EBITDA(2) EBITDA EV / Revenue EV / EBITDA
Company Cap (1) 2017E 2018E Margin 2017E 2018E Margin LTM 2017E 2018E LTM 2017E 2018E
S&P Global Inc. (SPGI) $39,473 $5,874 $6,214 70.6% $2,757 $2,947 45.9% 7.2x 7.1x 6.7x 15.2 x 15.2 x 14.2 x
Quintiles IMS Holdings, Inc. (Q) $19,866 $8,026 $8,517 41.6% $2,007 $2,177 21.6% 4.0x 3.4x 3.2x 17.0 x 13.7 x 12.7 x
Moody's Corporation (MCO) $25,141 $3,912 $4,106 71.8% $1,847 $1,950 47.9% 7.0x 6.9x 6.5x 13.8 x 14.5 x 13.8 x
IHS Markit Ltd. (INFO) $18,505 $3,545 $3,706 61.5% $1,393 $1,503 29.1% 6.7x 6.3x 6.0x 17.8 x 16.1 x 14.9 x
Verisk Analytics, Inc. (VRSK) $14,428 $2,094 $2,224 63.6% $1,019 $1,099 46.4% 8.2x 7.9x 7.4x 17.8 x 16.2 x 15.1 x
Gartner, Inc. (IT) $11,604 $3,303 $4,043 60.2% $700 $859 13.6% 4.4x 3.6x 3.0x 26.9 x 17.2 x 14.0 x
MSCI Inc. (MSCI) $9,855 $1,266 $1,379 78.1% $657 $734 50.7% 9.4x 8.9x 8.1x 17.5 x 17.1 x 15.3 x
FactSet Research Systems Inc. (FDS) $6,560 $1,262 $1,361 55.5% $430 $464 35.0% 5.9x 5.5x 5.1x 15.7 x 16.1 x 15.0 x
Mean $18,179 $3,660 $3,944 62.8% $1,351 $1,467 36.3% 6.6x 6.2x 5.8x 17.7x 15.8x 14.4x
Median $16,466 $3,424 $3,874 62.5% $1,206 $1,301 40.5% 6.8x 6.6x 6.3x 17.2x 16.1x 14.5x
NA = Not Available; NM = Not Meaningful; LTM = Latest Twelve Months As of close July 31, 2017.
‡ = excluded from Mean and Median calculations Excludes non-recurring, discontinued operations and stock-based compensation
Source: Public Filings, Press Releases and Published Research Reports
(1)
(2)
SPGI
Q MCO
INFO VRSK IT MSCI
FDS
0.0 x
2.0 x
4.0 x
6.0 x
8.0 x
10.0 x
12.0 x
14.0 x
16.0 x
18.0 x
20.0 x
0.0% 5.0% 10.0% 15.0%
EV/EBITDA (2017E)
Revenue Growth (2017E)
SPGI
Q
MCO INFO
VRSK
IT
MSCI
FDS
0.0 x
1.0 x
2.0 x
3.0 x
4.0 x
5.0 x
6.0 x
7.0 x
8.0 x
9.0 x
10.0 x
0.0% 20.0% 40.0% 60.0% 80.0%
EV/Revenue (2017E)
Revenue Growth (2017E) + EBITDA Margin (LTM)
MHH | Technology Services Group 14
TECHNOLOGY SERVICES: INFORMATION SERVICES
Announced Acquirer Target Description
July 24 Health information services
July 19 SaaS based healthcare solutions
July 17 Healthcare IT consulting
July 12 HIPAA compliance services and healthcare
IT solutions
July 10 Payer-provider and value-based analytics
Valuation Metrics
Select July 2017 Precedent Transactions*
HEALTHCARE IT
Source: CapitalIQ*Please contact the MHH Technology Services Group directly for any information regarding valuation and deal size**Excluded: CSLT
Relative Valuation**
Constellations Healthcare IT business unit
($ in millions) Operating Metrics Valuation Multiples
LTM LTM
Market Revenue Gross EBITDA(2) EBITDA EV / Revenue EV / EBITDA
Company Cap (1) 2017E 2018E Margin 2017E 2018E Margin LTM 2017E 2018E LTM 2017E 2018E
Cerner Corporation (CERN) $21,344 $5,206 $5,638 85.2% $1,709 $1,873 28.0% 4.3x 4.1x 3.8x 14.6 x 12.4 x 11.3 x
Veeva Systems Inc. (VEEV) $8,911 $670 $801 68.8% $213 $257 24.3% 14.2x 12.3x 10.3x 44.4 x 38.8 x 32.1 x
athenahealth, Inc. (ATHN) $5,523 $1,225 $1,392 51.7% $266 $312 11.1% 5.0x 4.7x 4.1x 29.3 x 21.5 x 18.4 x
Allscripts Healthcare Solutions, Inc. (MDRX) $2,234 $1,777 $2,024 49.6% $354 $403 9.7% 2.4x 2.2x 1.9x 19.2 x 11.0 x 9.7 x
WebMD Health Corp. (WBMD) $2,463 $726 $744 63.4% $240 $246 26.0% 3.5x 3.4x 3.3x 11.5 x 10.3 x 10.0 x
Inovalon Holdings, Inc. (INOV) $1,854 $451 $488 64.4% $108 $122 16.0% 3.8x 3.5x 3.2x 19.6 x 14.6 x 12.9 x
Quality Systems, Inc. (QSII) $1,080 $524 $538 56.5% $78 $87 11.8% 2.0x 2.0x 2.0x 15.2 x 13.5 x 12.2 x
National Research Corporation (NRCI.B) $794 $119 $130 58.2% $40 $44 34.2% 6.7x 6.4x 5.9x 18.7 x 19.1 x 17.2 x
HealthStream, Inc. (HSTM) $753 $247 $270 56.5% $36 $43 9.9% 2.7x 2.6x 2.4x 25.0 x 17.5 x 14.9 x
Computer Programs and Systems, Inc. (CPSI) $415 $269 $282 52.7% $49 $53 10.9% 2.1x 2.1x 2.0x 16.5 x 11.5 x 10.5 x
Castlight Health, Inc. (CSLT) $561 $133 $170 67.8% ($26) ($12) -42.3% 4.0x 3.4x 2.7x NM NM NM
Mean $4,537 $1,121 $1,231 60.7% $309 $344 18.2% 4.7x 4.3x 3.9x 21.4x 17.0x 14.9x
Median $1,854 $524 $538 58.2% $108 $122 11.8% 3.8x 3.4x 3.2x 19.0x 14.1x 12.6x
NA = Not Available; NM = Not Meaningful; LTM = Latest Twelve Months As of close July 31, 2017.
‡ = excluded from Mean and Median calculations Excludes non-recurring, discontinued operations and stock-based compensation
Source: Public Filings, Press Releases and Published Research Reports
(1)
(2)
CERN
VEEV
ATHN
MDRX WBMD
INOV QSII
NRCI.B …
CPSI
0.0 x
5.0 x
10.0 x
15.0 x
20.0 x
25.0 x
30.0 x
35.0 x
40.0 x
45.0 x
0.0% 5.0% 10.0% 15.0% 20.0% 25.0%
EV/EBITDA (2017E)
Revenue Growth (2017E)
CERN
VEEV
ATHN
MDRX
WBMD
INOV
QSII
NRCI.B
HSTM CPSI
0.0 x
2.0 x
4.0 x
6.0 x
8.0 x
10.0 x
12.0 x
14.0 x
0.0% 10.0% 20.0% 30.0% 40.0% 50.0%
EV/Revenue (2017E)
Revenue Growth (2017E) + EBITDA Margin (LTM)
TECHNOLOGY SERVICES MONTHLY
The Mufson Howe Hunter Technology Services IndicesIT Outsourcing is currently comprised of: ACN, CTSH, INFY, NESI:HCLTECH, GIB.A, WIT, ENXTPA:ATO, SYNT, VRTU, PRFT; Business Process Outsourcing Index is currently comprised of: ADP, G, EPAM, LXFT, EXLS, WNS,GLOB; Infrastructure Services Index is currently comprised of: EQIX, ZAYO, UTDI, VRSN, DFT, GDDY, EIGI, WIX, WEB, INAP; Information Services Index is currently comprised of: SPGI, Q, MCO, INFO, VRSK, IT, MSCI, FDS;and, Healthcare IT is currently comprised of: CERN, VEEV, ATHN, MDRX, WBMD, INOV, QSII, HSTM, NRCI.B, CPSI, CSLT.
The companies that comprise each Index periodically change as a result of mergers, acquisitions, initial public offerings and other transactions; therefore, comparisons to historical time periods and historicalperformance for each Index may not entirely correspond and correlate to the Index’s current performance. Historical performance is not a guarantee or prediction of future results. The information and statistical datacontained herein have been obtained from sources that Mufson Howe Hunter believes are reliable, but Mufson Howe Hunter makes no representation or warranty as to the accuracy or completeness of any suchinformation and data and expressly disclaims any and all liability relating to or resulting from your use of these materials. The information and data contained herein are current only as of the date(s) indicated andMufson Howe Hunter has no intention, obligation or duty to update these materials after such date(s). These materials do not constitute an offer to sell or the solicitation of an offer to buy any securities.
Copyright © July 2017 Mufson Howe Hunter & Company LLC. All rights reserved. Technology Services Monthly is produced monthly by Mufson Howe Hunter. Mufson Howe Hunter provides a full range of investment
banking services to Technology Services companies. For more information, visit www.mhhco.com.Icons by Flaticon.
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Brandon EckManaging Director,
Head of Technology Services
215.399.5411 [email protected]
For more information, please contact:
Andrew WilsonVice President,
Technology Services
215.399.5406 [email protected]