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Market Analysis Winter 2014

Technology-Enabled Services Perspective on Technology-Enabled Business Models

Peter Kies Managing Director Head of Technology & Services Investment Banking +1.414.765.7262 [email protected]

David Silver Managing Director Head of European Investment Banking +44.207.667.8216 [email protected]

Louis Draper Managing Director Software +1.650.858.3821 [email protected]

Chris Hildreth Managing Director Marketing Solutions +1.312.609.4937 [email protected]

Kiran Paruchuru Managing Director Business Process Outsourcing +1.312.609.4926 [email protected]

Bret Schoch Managing Director Human Capital +1.312.609.4965 [email protected]

Andrew Snow Managing Director Education +1.312.609.4972 [email protected]

Ross Williams Managing Director Facilities Management +1.414.298.6235 [email protected]

Dan Alfe Director Education +1.312.609.4922 [email protected]

Erik Szyndlar Vice President Software +1.650.858.3814 [email protected]

Table of Contents Page

Please refer to Appendix – Disclaimers and Other Disclosures on page 16.

• Executive Summary ............................................................................................ 1

• Technology Themes ............................................................................................ 2

• Macro Themes .................................................................................................... 6

• Technology-Enabled Services Verticals .............................................................. 8

• Baird’s Technology-Enabled Services Transaction Experience .......................... 13

• Baird’s Technology & Services Team ................................................................ 15

The following report has been prepared by the Investment Banking Department of Robert W. Baird & Co. This report is an overview and analysis of industry and consolidation trends and is not intended to provide investment recommendations on any specific industry or company. A complete listing of all companies covered by Baird U.S. Equity Research and applicable research disclosures can be accessed at <http://www.rwbaird.com/researchdisclosure>. You can also call 1-800-792-2473 or write: Robert W. Baird, Equity Research, 24th Floor, 777 E. Wisconsin Avenue, Milwaukee, WI 53202.

Robert W. Baird & Co. (“Baird”) is a leading middle market focused investment bank serving the M&A and equity financing needs of our clients throughout the U.S., Europe and Asia. Since 2004, we have advised on 496 M&A transactions totaling $93.1 billion and have served as an underwriter on 544 equity offerings totaling more than $152 billion in raised capital. Baird’s balanced buy- and sell-side practice provides expertise for public and private companies, while our dedicated financial sponsor coverage further expands opportunities and financing resources for our clients. Through close coordination between our U.S., European and Asian bankers, we work to optimize opportunities and results for clients in the international marketplace. Approximately one-third of our M&A activity over the past five years has involved international transactions.

Executive Summary

Robert W. Baird & Co. 1

Introduction. Over several decades, the Services franchise of Robert W. Baird & Co. has demonstrated sector expertise and thought leadership while successfully evolving with each wave of Services trends. This report, created by Baird’s Investment Banking Department, highlights our extensive coverage of technology-enabled business models, which have become increasingly prominent within our Services franchise. The report illustrates the prevalence of technology adoption and integration into the operations, products, and services of businesses of all types, resulting in new and evolving business models throughout the Services sector.

We define Technology-Enabled Services (TES) as services-based business models that have been fundamentally transformed or created through the implementation of technological advancements, often spearheaded by emerging companies. Within our core coverage areas, the following verticals are featured in this report: • Education Technology • Human Capital Technology & Services • Marketing Solutions • Business Process Outsourcing • Integrated Facilities Management Additional TES verticals within Baird’s Services coverage include Energy Services, Information Services, Logistics / Supply Chain, and Financial Technology.

Technology-enabled businesses have a growing presence in nearly every sector of the economy due to the potential to compete more effectively in their respective industry verticals against legacy business models. This report reviews factors supporting technology-enabled businesses across industries, focusing on the impact of technology on the Services landscape. The general drivers supporting the success of technology-enabled businesses transcend the confines of industry classifications. Accordingly, while this report profiles Services verticals, other key sectors for Baird – such as Industrial, Consumer, and Healthcare – are being similarly affected by technology-enabled models.

Overview. Today’s business environment has been fundamentally transformed by the emergence of several technology advancements. Disruptive businesses across industries are embracing technology innovations to compete more effectively. These technology-enabled businesses differentiate in part through the following attributes: • The ability to deliver products and services to market more rapidly and / or cost effectively • Efficiency in scaling and aligning resources to match fluctuating demand and to exploit market opportunities • The capacity to gather, analyze, and derive unique value from business- and operational-level information

The following pages of this initial report review key themes driving the emergence of TES business models, along with a brief summary of TES themes, drivers, and deal activity for the verticals highlighted above. In future reports, we intend to provide in-depth discussion and details on trends and transaction activity in these verticals.

Technology Themes. The technology advancements facilitating the emergence of technology-enabled businesses can be aggregated into a few summary themes: • Mobility: Business communications have been revolutionized by the increasingly powerful capabilities of mobile

devices and the advanced network infrastructure that enable real-time and secure interactions. • Cloud: The cloud provides an efficient and increasingly secure way to access a variety of IT tools – such as

software (SaaS), platforms (PaaS), and infrastructure (IaaS) as services – without building or maintaining a costly IT infrastructure. Enterprises of all sizes are adopting cloud strategies to realize operational and financial benefits.

• Data Analytics: New technologies can extract insights and value from troves of business data, creating a high-growth market opportunity for TES providers.

Macro Themes. Key macroeconomic drivers that have fueled the increased prominence of TES models include: • Global Competition: TES providers have developed technology-enabled capabilities in response to intense global

competition. Operating models based on technology platforms strengthen customer ties by facilitating integration with client systems, information gathering and reporting, expansion of service capabilities, and scalability.

• Multi-National Operations: With the help of technology, many TES companies have developed worldwide resources in order to service clients that consider global capabilities a top requirement for external services providers.

• Recession Impact: The economic downturn of 2008-2009 and its aftermath accelerated customer adoption in several TES verticals. The value proposition of outsourcing to TES companies has proven attractive for companies prioritizing cost controls during the recession and in the subsequent low-growth economic recovery.

Technology Themes


Technology supports the feasibility and growth of technology-enabled businesses, and the following three technological drivers are on the forefront of shaping the technology landscape: • Mobility • Cloud • Data Analytics

These technology drivers are discussed at the highest levels of organizations and play an increasing role in the overall business strategy of enterprises today. For example, according to the most recent Gartner CIO survey (>2,330 CIOs from 77 countries representing more than $300 billion in annual IT spend), mobility, cloud, and data analytics top the list of priorities for CIOs. (These three drivers have consistently placed in the top five priorities in recent surveys.) Additionally, many forward-looking publications from research providers such as Gartner and IDC include mobility, cloud, and data analytics as the dominant drivers of technology trends in 2014 and beyond.

Mobility Ubiquitous ability to interact, communicate, and collaborate

Business communications have been revolutionized by the increasingly powerful capabilities of mobile devices and the advanced network infrastructure that enable real-time and secure interactions. It is well noted that PCs have been losing share over the past several years to mobile devices. The enhanced capabilities of mobile phones and the emergence of the tablet have, in part, facilitated the decline of PCs. The table below highlights the expected continued strong adoption of mobile devices.

Worldwide Device Shipments by Segment (Thousands of Units)

Device Type 2012 2013 2014 2015 CAGR

PC (Desk-Based and Notebook) 341,273 299,342 277,939 268,491 (7.7%)

Tablet (Ultramobile) 119,529 179,531 263,450 324,565 39.5%

Mobile Phone 1,746,177 1,804,334 1,983,425 1,964,788 4.0%

Other Ultramobiles (Hybrid and Clamshell) 9,344 17,195 39,636 63,835 89.7%

Total 2,216,323 2,300,402 2,564,450 2,621,679 _____________________ Source: Gartner. Note: The mobile phone market is comprised of higher-end smartphone and lower-end feature phone segments. According to Gartner, smartphone sales surpassed sales of feature phones in Q1 2013 and have continued to gain share (~55% in Q3 2013).

The other side of the mobile equation to consider is the infrastructure. As wireless network providers continue to develop their systems to support larger data bandwidth (i.e., 4G, LTE, etc.) and as WiFi technology is becoming increasingly deployed, the bandwidth available to mobile devices is continuously improving.

Projected Average Mobile Connection Speeds by Device (in Kbps)

13%

12%

14%

0

1,500

3,000

4,500

6,000

7,500

9,000

2013 2014 2015 2016 2017 2018

Global speed: All Handsets Global speed: Smartphones Global speed: Tablets2013-2018

CAGR

_____________________ Source: Cisco VNI Mobile Forecast, 2014.

Technology Themes


The proliferation of mobile devices and the increasing prevalence of high-speed connectivity have caused several mobile-related sub-themes to emerge: • Remote Workforce: Technology advancements have enabled employees to remain connected anywhere, any time.

Aside from the work / life balance benefits, firms are also leveraging remote workforces for operational benefits (e.g., support growth initiatives, enhanced customer service, etc.).

• Consumerization: Personal experiences with mobile technology are shifting expectations of how technology could and should be used in the workplace. As a result, technology products and accessibility to technology services within the enterprise are increasingly being driven by the demands of the individual user (contrasted, for example, by the demands of the corporate IT department).

• Bring Your Own Device (BYOD): One way consumerization has manifested itself is through employees using their personal devices for work applications. While the BYOD trend has significantly increased the complexity of the IT environment, Gartner estimates that BYOD has increased the mobile workforce by 2-3x.

• Cloud: Workforce mobility has been further enabled by having remote access to centralized core technologies and applications. The cloud has effectively positioned the mobile device as an interface to interact with technology, contrasted with the mobile device as a computational or storage device for processing technology.

Cloud Increasing adoption of technology delivered as-a-Service is a strategic priority and fuels a high-growth opportunity

Initially adopted by small and medium businesses as a means to “rent” software and sidestep the high capital costs associated with ownership, the cloud provides an efficient and increasingly secure mechanism to access and utilize a variety of IT tools – such as software (SaaS), platforms (PaaS), and infrastructure (IaaS) as services – without having to build or maintain a costly IT infrastructure. Today, enterprises of all sizes are adopting cloud strategies and are realizing operational and financial benefits that extend well beyond cost savings. These benefits include heightened employee engagement and collaboration, enhanced mobility, increased workflow visibility, and more efficient decision-making. In short, the cloud is evolving from an IT-centric strategy for cost savings to a corporate-wide strategy for driving growth and business performance.

In a recent study conducted by IBM, companies that reported having gained a competitive advantage through broad adoption of the cloud platform outperformed their peers by a large margin. The study found that cloud pacesetters (18% of companies) generated nearly twice the revenue growth of challengers (51%) and chasers (31%) during 2009-2012. Moreover, gross profit growth for the pacesetter group was 2.4 times the average of the chasers, highlighting the benefits realized by early adopters of cloud technology.

With the prospect of superior business performance facilitated by cloud adoption, an increasing number of companies are shifting more of their workloads to the cloud. The question around cloud strategies has shifted from “What is the cloud?” to “How can my organization further leverage the cloud?” A few recent publications highlight this trend: • The recent Gartner CIO survey found that 50% of the participants reported that at least 50% of their businesses

will be running on the public cloud by 2020; another 25% stated that a substantial part of their business is already on the public cloud.

• The recent Cloud Computing survey by North Bridge and GigaOM (>850 IT decision-makers) found that 63% of respondents use SaaS applications today (growth of 15% since 2012). o Four SaaS business applications were reported to be used by at least 50% of respondents: file sharing,

business productivity, marketing, social / collaboration. o Zero SaaS IT applications met the 50% penetration threshold (IT applications include development and

testing, back-up, analytics, and mobile). However, the strongest growth in SaaS applications is expected to come from the cloud-based IT applications, with analytics and mobile two of the strongest growers.

Technology Themes


Given the scale of cloud adoption, it is no surprise that the market is a multi-billion industry worldwide. IDC estimates the market for public cloud services was approximately $47 billion in 2013, reflecting a CAGR of 30% since 2010; the private cloud market was approximately $12 billion and had grown similarly since 2010. In 2013, the SaaS component of the public cloud market represented the largest share (63%), followed by IaaS (26%) and PaaS (11%).

Worldwide Cloud Revenue by Segment

12.3

31.1

2013 2017

Public IaaS

12.3

22.2

2013 2017

Total Private

47.4

107.2

2013 2017

Total Public

5.3

14.0

2013 2017

Public PaaS

29.8

62.1

2013 2017

Public SaaS

($ in billions)

_____________________

Source: IDC.

IDC projects a $107 billion public cloud market in 2017, with all three components expected to achieve 20%+ CAGRs. IDC expects the private cloud to experience slightly slower growth and to become a $20+ billion market by 2017.

From a geographic perspective, the U.S. is expected to remain the dominant market (57% public cloud share in 2013, 44% in 2017); however, its growth is expected to be outpaced by Western Europe and the emerging markets.

Worldwide Public Cloud Revenue by Region

26.8

47.1

2013 2017

10.8

30.8

2013 2017

7.0

22.9

2013 2017

United States Western Europe Emerging Markets

($ in billions)

_____________________ Source: IDC.

Recognizing the rapid adoption of the as-a-Service model and growth potential of the sector, many software and technology companies are strategically positioning for this large opportunity. A few examples include: • Software titans such as Oracle and SAP are aggressively pursuing the push into SaaS through large M&A

transactions: Oracle acquired RightNow, Taleo, Eloqua, and Responsys, and SAP bought Ariba and SuccessFactors. • Microsoft (legacy license model) is offering a version of its popular Office suite (Office 365) in a SaaS format and

its Dynamics CRM and ERP products in a cloud-based format. • Well-known, large legacy license model software companies such as Adobe and Autodesk have recently announced

their strategic shift to 100% SaaS. • Vertically-focused SaaS companies such as athenahealth (healthcare), Veeva Systems (life sciences), Textura

(construction), and Ellie Mae (financial services) have emerged and received strong market traction. • Companies such as Workday and Netsuite offer a 100% cloud-based alternative to the packaged software

historically served by license software providers. • Technology leaders Google, Amazon, Microsoft, and salesforce.com are aggressively pursuing IaaS/PaaS offerings.

Technology Themes


Data Analytics The potential of business intelligence and Big Data

The term “business intelligence” has been around for many decades, but in the last 20 years, business intelligence has evolved from concept to core business discipline. The information and data generated within enterprises today is increasingly being mined and analyzed to improve critical business functions such as marketing, product development, and customer service. The technologies utilized to perform these analyses are collectively called business intelligence (BI) tools, whose valuable insights are causing considerable demand for their increased adoption both at the corporate level as well as within business units. In fact, business unit leaders are frequently leading the evaluation process for BI tools and, as a testament of how important BI is to their units’ success, are often funding the purchase through their department P&L.

The full potential of data analysis is further highlighted considering the ever-increasing volumes of data being generated today by our interconnected world. Consider: • Global Internet traffic has increased fourfold in the past five years and is expected to increase threefold over the

next five years. o In 2014, more than 65 Exabytes (or 17+ billion DVDs worth) of data will be transmitted across the Internet

per month (up 24% from 2013). • The number of smartphones, tablets, laptops, and internet-capable phones exceeded the world’s population in

2013. o Internet traffic from these mobile devices will exceed 50% of all Internet traffic by 2017.

• In 2012, the number of network-connected devices in the world was nearly twice the global population. In 2017, the number will exceed 3x. o Growth will be fueled by “Internet of Things” adoption: machine-to-machine communications and embedded

and networked devices.

The enormity of these data volumes has led to the creation of the term “Big Data” and represents a potential treasure trove of information that could further augment business strategy. New technologies and services are required to extract value from Big Data, and this has created a fragmented, competitive, and high-growth market opportunity for companies such as TES providers. IDC sizes the market of the technology and services required to manage, analyze, and access Big Data. A few takeaways from their recent report include: • The Big Data market will surpass $15 billion in 2014 and grow to more than $30 billion by 2017, representing

growth at 5x the overall expansion of the IT industry. • The professional services market in Big Data will exceed $4.5 billion in 2014. • The number of vendors in the Big Data market will more than triple over the next three years.

Worldwide Big Data Technology and Services Revenue by Segment

5.9

16.9

2013 2017

Infrastructure

3.1

6.7

2013 2017

Software

3.7

8.8

2013 2017

Services

12.6

32.4

2013 2017

Total

($ in billions)

_____________________ Source: IDC.

Macro Themes


In addition to the technology developments described in the previous section, several macroeconomic factors have fueled the emergence of technology-enabled business models: • Global Competition • Multi-National Operations • Recession Impact

The following section discusses each of these macro themes.

Global Competition

TES providers have developed technology-enabled capabilities in response to intense competition that extends across the globe in many sectors. Operating models based on technology platforms strengthen ties with customers by facilitating integration with client systems, information gathering and reporting, expansion of service capabilities, and scalability. Given the rapid pace of technological change, further technology investment and development are essential to maintaining customer satisfaction and promoting client retention, with M&A often serving as a primary means of establishing TES in response to the competitive environment.

TES providers earn new business by becoming key technology partners for customers, which often evaluate the technology expertise of services providers during the contract awarding process. Technology spending can offer a quick payback period due to: • Enhanced revenue potential • Increased productivity and efficiency • Lower administrative overhead • Reduced paperwork • Improved customer service and reporting

Customers that are already sophisticated users of technology place high value on technology-enhanced services that extend their own competitive advantages. In situations involving outsourcing to TES firms, clients are able to employ the latest technologies without significant capital spending.

TES companies are positioned to satisfy customers that are increasingly focused on technology-enabled information gathering and reporting. As an enhancement to the base service offering, some TES firms aggregate valuable client data in the process of providing the service. Effective use of technology also enables services providers to measure performance in real time, allowing for improved operational efficiency in terms of costs and service quality. Customized services can offer detailed information as evidence of the TES provider’s value proposition for its clients. For example: • Education technology providers have the tools to demonstrate superior student outcomes. • Customers of integrated facilities management firms are able to use Internet-based tools to monitor project status

and job activity in real time.

The emergence of TES is aligned with customer demand for more robust service offerings and a more comprehensive set of services. Operating via a technology platform supports enhancements to scale and scope as needed in response to the trend of vendor consolidation, especially among large clients directing services spending to fewer vendors in order to lower costs, reduce complexity, and standardize service. Technology allows operations to scale through the addition of service functions, locations, and personnel without increases in administrative overhead. Scalable platforms based on technology lead to operating leverage as customers are added, thereby reinforcing the strong competitive position of leading players while facilitating expansion with clients.

Macro Themes


Multi-National Operations

Many TES companies have developed worldwide resources in order to service clients that consider global capabilities a leading requirement for services providers. Advanced technological capabilities help TES firms feature the broad geographic coverage needed to secure business with multi-national and global accounts.

In many categories, services companies must have the ability to operate in a wide range of geographic markets in order to win projects and deliver contracted services. To capitalize on the most lucrative opportunities, TES firms need to provide services to clients operating throughout the world. Establishing capabilities in additional regions strengthens relationships with clients and thus leads to more sales opportunities. The vendor consolidation trend enables selected providers to invest further in technology, strengthening the position of these firms.

Services providers featuring leading technology are best able to extend into new geographic markets. State-of-the-art IT systems that leverage innovations in mobility and the cloud (as discussed above) are essential for managing: • Extensive networks of customer locations • Third-party vendors • Complex billing • Online invoicing and payment • Comprehensive data M&A that enhances technology capabilities can help TES providers round out global platforms, which are increasingly essential to serving customers seeking consistent delivery of high-quality services regardless of geographic location.

Technology facilitates customization by region to meet regulatory mandates, service requirements, and other specialized needs. Across markets, government regulations place a heavy burden on the administration and operations of services providers and their customers. Ongoing changes in regulations can be a catalyst for increased partnering with TES providers that make appropriate use of technology to ensure compliance. In addition, risk mitigation gains relevance in an overseas setting, boosting the value of the technology-based expertise offered by TES firms.

Recession Impact

The economic downturn of 2008-2009 and its aftermath accelerated customer adoption in several TES verticals. Companies prioritizing cost controls during the recession turned to TES firms, particularly those able to take responsibility for non-core functions. After the recession, businesses that rationalized various functions became more reliant on TES providers. Furthermore, the value proposition of outsourcing to TES companies has remained strong during a low-growth economic recovery.

The recent period of challenging economic conditions motivated new customers to contract with TES providers due in part to cost reduction opportunities. The difficult economic environment required greater focus on core operations, resulting in more willingness to outsource non-revenue-producing functions to technology-enabled services providers. The economic downturn highlighted outsourcing benefits such as cost reductions, time efficiencies, improved service, decreased risks, and lower administrative burdens. The strong performance for certain TES verticals (e.g., outsourcing providers within Human Capital Technology & Services) during the recession and the subsequent recovery illustrates the lasting appeal of these service offerings for customers.

Personnel reductions incurred during the downturn caused many clients to seek the solutions offered by TES firms. Internal services departments contracted, resulting in greater need for the resources and expertise of TES companies. For example: • Shrunken sales and marketing departments that rationalized during the recession turned to the automated

systems and advanced capabilities of technology-enabled marketing solutions. • Companies contended with internal HR infrastructure that was gutted due to cost-cutting programs, enhancing

demand for HR services and technology that facilitate recruiting and vendor management.

The merits of TES offerings have also borne out as the economic recovery has progressed. The expense reduction available through these models remains a focal point for businesses due to the challenges of driving the top line in a low organic growth environment. Based on their experiences during the recession, executives continue to cast a critical eye on expenses, causing cost structure decisions to escalate within companies. As an example, large companies are now strategically managing their infrastructure assets due to the increased scrutiny being placed on costs. As a result, demand is rising for integrated facilities management services that can drive down costs via comprehensive technology-enabled capabilities.

Technology-Enabled Services Verticals


Education Technology Introduction

Key product and services areas within Education Technology include: Digital Curriculum; Adaptive Learning Software; Instructional Management Systems (IMS) & Learning Management Systems (LMS); Student Information Systems (SIS); Lead Generation & Enrollment Management Services; Student Response Systems/Whiteboards; and Video/Class Capture.

Key Trends and Considerations in Education Technology • Improved focus on learner outcomes / return on investment

and efficiency due to continued financial constraints • Increasingly online, mobile modalities and ever-growing

broadband accessibility are evolving the way consumers digest information

• Growth in disruptive technologies and changing educational pedagogies (e.g., flipped classroom)

• Continued shift of core and non-core activities associated with education delivery to outside providers

• The “democratizing” effect of lower entry barriers via digital delivery is creating a proliferation of early stage companies

Select Market Participants in Education Technology

M&A Themes and Drivers in Education Technology • Highly fragmented landscape of early stage players; few

dominant national or global providers • Sector has attracted significant venture and university

endowment funding • Scarcity value for platforms of scale and with recurring

subscription-based revenues yielding premium multiples

• Barrier to scale is limited sales channel / access to faculty decision-makers, resulting in a proliferation of JVs and distribution partnerships with established content players

• A handful of strategic players (e.g., Pearson) have been active consolidators

M&A and Capital Raising Activity in Education Technology Select Recent Relevant M&A and Private Placement Transactions Date Closed Target / Description Acquiror/Investor Deal Value ($mil)

12/16/13 WyzAnt – online marketplace for tutor-student matching services Accel 21.5 11/22/13 Coursera – offers online courses from various universities Venture investor group 43.0 09/06/13 UniversityNow – provides online educational services Venture investor group 21.4 08/07/13 eInstruction – provides interactive educational software Turning Technologies - 08/06/13 TrainSignal – provides IT training services Pluralsight 23.6 08/06/13 TSL Education – offers online platforms for sharing education resources TPG Capital 600.0 08/01/13 Lexia Learning – provides educational software focused on reading Rosetta Stone 22.5 06/30/13 ALEKS Corporation – develops online educational software McGraw Hill Education - 06/05/13 Instructure – provides open-source learning management system Venture investor group 30.0 01/07/13 Tutor.com – provides online tutoring and homework help services IAC - 10/16/12 EmbanetCompass – provides online learning services Pearson 650.0 05/16/12 Certiport – provides certification test and program management solutions Pearson 140.0

Select Recent Relevant Equity Offerings

Pricing Date Issuer / Description Deal Type Amount

Offered ($mil) Post-Deal

Market Cap ($mil)

11/12/13 Chegg – online provider of college textbooks and resources IPO 187.5 1,021.6 06/06/13 Rosetta Stone – offers technology-based language learning Follow-on 56.0 367.5 07/14/10 Smart Technologies – offers interactive learning technology IPO 660.1 2,065.1 04/15/10 Princeton Review – provides education products and services Follow-on 48.3 173.0 03/12/10 Promethean World – develops learning technology solutions IPO 277.6 570.0

_____________________ Source: Capital IQ.

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Human Capital Technology & Services Introduction

The Human Capital sector has seen significant growth driven by new technology-enabled business models. Key sector drivers include outsourcing momentum, increased efficiency through technology, greater reliance on robust analytics, increased familiarity with new technological advances, and convergence across areas of a firm’s people strategy driven together by an overarching strategy to win.

Key Trends and Considerations in Human Capital Technology & Services • Outsourcing Momentum: proliferation of outsourcing non-

core activities at greater proficiency and lower cost • Fixed/Variable: accordion-like resource fluctuation in HR

departments across business cycles suggests outsourcing • Social: allows recruiters to have a broader geographical

reach and easier connection with passive job seekers • Cloud: magnifies the impact of innovation, as all clients are

on the same version and continuous roll-out of new features is possible

• Consolidation: large software and services providers are leveraging resources to acquire additional capabilities to be a full-service HR provider

• War for Talent: the cost of not acquiring or retaining superior talent drives companies to seek premier solutions

• Mobile: balance between employees who “want it all” on their mobile devices and data security concerns

• Learning Management Systems: significant fragmentation as companies struggle with which LMS to buy and what to do with legacy systems

• Recruitment Process Outsourcing: providers focused on differentiation as firms push outsourcing to remain lean and agile post-recession

• Big Data: ever-present at the talent analytics level yet companies are still finding their way with what to do with massive amounts of data

Leading Companies in Human Capital

M&A Themes and Drivers in Human Capital Technology & Services • Consolidation has been constant as diversified software/ERP

players (SAP, Oracle, IBM) acquire the largest platforms • Continued evolution of both convergence to end-to-end

outsourcing and unique best-of-breed point solutions

• Cloud computing is permitting greater specialization among firms, and truly unique offerings are the most desirable from an M&A perspective

• SaaS delivery is driving outsized profitability, but many solutions are still evolving toward achieving scale

M&A and Capital Raising Activity in Human Capital Technology & Services Select Recent Relevant M&A and Private Placement Transactions Date Closed Target / Description Acquiror/Investor Deal Value ($mil)

12/16/13 Alexander Mann – provides RPO, consulting services, and talent management New Mountain Capital 419.0 12/02/13 CyberCoders – provides recruiting and job search services and technology On Assignment Inc. 105.0 12/03/12 Kenexa – SaaS that helps companies recruit, retain, and develop employees IBM 1,308.7 08/02/12 Pinstripe – provides RPO and talent management solutions Accel-KKR - 02/08/12 Taleo Corp. – provides on-demand talent management solutions Oracle Corporation 1,921.4 01/05/12 WorkforceLogic LLC – operates as a workforce management company APC Workforce Solutions -




Market Cap ($mil)

09/17/13 Benefitfocus – cloud-based software solutions IPO 150.4 644.3 05/30/13 Concur Technologies – provides intranet-based employee expense

management solutions Convertible

Offering 488.8 4,419.0

05/13/13 Halogen Software – performance & talent management software IPO 62.8 245.9 10/11/12 Workday – enterprise cloud applications for HR & Finance IPO 732.6 4,583.7




Marketing Solutions Introduction

Dramatic changes in the media and communications landscape have had a significant impact on advertisers and their technology and services providers. The proliferation of digital and other “new” media as well as the advancement of mobile technologies have provided alternative means for consumers to read, learn, shop, communicate, and recreate. A number of marketing technology and technology-enabled services companies are seeking to capitalize on the resulting opportunities and challenges faced by advertisers.

Key Trends and Considerations in Marketing Solutions • Massive mobile growth and superior targeting capabilities

have lifted digital media to 25% of ad spending, creating big opportunities for new entrants and nimble legacy providers

• The ability to precisely measure digital marketing’s impact is fueling a spending shift away from offline media and lifting demand for measurement and analytics solutions

• Marketers tailoring more campaigns to local markets – e.g., customer use of search engines to research local businesses has created a new channel for targeted offers / promotions

• Digital media players such as Google and Facebook are gaining share by disintermediating ad agencies, which are trying to retain power and advertiser share by consolidating

• Marketing solutions firms are helping clients access, analyze, and monetize troves of organizational data. Companies are augmenting these internally sourced insights with data from external sources to enhance marketing ROI

• The recent economic downturn and recovery boosted demand for outsourced marketing solutions and automation tools

Leading Companies in Marketing Solutions While the lines between services, software, and data-oriented solutions are blurring, the offerings of technology-enabled marketing solutions providers are aligned with core elements of corporate marketing functions: Strategy, Planning, & Targeting; Execution; and Measurement & Monitoring.

Strategy, Planning & Targeting Execution Measurement & Monitoring

M&A Themes and Drivers in Marketing Solutions • Transformational deals to enhance digital capabilities with an

emphasis on mobile and social media • Enterprise software leaders competing to acquire advertising

technology assets to expand / enhance marketing suite • Large information companies investing in new datasets and

technology platforms to ensure “content-centric software”

• Traditional ad agencies combining to enhance platform strength against competition from large digital media players (i.e., Google and Facebook) and new market entrants

• The proliferation of social media in combination with big data analytics continues to drive M&A (e.g., Apple acquisition of Topsy Labs)

M&A and Capital Raising Activity in Marketing Solutions Select Recent Relevant M&A and Private Placement Transactions Date Closed Target / Description Acquiror/Investor Deal Value ($mil)

Pending Omnicom Group – offers advertising, marketing, and communications services globally Publicis Groupe 20,461.5 02/06/14 Responsys – provides automated online marketing automation coordination Oracle Corporation 1,589.2 02/04/14 Valassis Communications – provides media solutions Harland Clarke 1,946.5 12/02/13 Topsy Labs – provides real-time search and analytics for social media Apple 200.0 09/30/13 Arbitron – provides media and marketing information services Nielsen Holdings 1,293.5 09/05/13 Adap.tv – connects video advertising buyers to sellers on a single platform AOL 405.0 07/23/13 Neolane – provides software to manage, automate, and optimize marketing programs Adobe Systems 600.0 07/10/13 ExactTarget – provides cross-channel digital marketing SaaS solutions Salesforce.com 2,539.0 03/26/13 Aegis Group – provides branding, media, and marketing services Dentsu 5,484.1 01/29/13 LBi International – provides marketing services for digital channels Publicis Groupe 412.4 08/13/12 Buddy Media – provides cloud-based solutions for managing social media and marketing Salesforce.com 745.0


Pricing Date

Issuer / Description

Deal Type Amount


Market Cap ($mil)

08/06/13 YuMe – provides digital video brand advertising solutions IPO 46.1 286.2 07/18/13 RetailMeNot – digital market connecting consumers with retailers / brands IPO 219.6 1,054.4 03/28/12 Millennial Media – provides mobile advertising IPO 132.6 982.3

______________

Source: Capital IQ.



Business Process Outsourcing Introduction

Business Process Outsourcing (BPO) companies are actively seeking means of better serving their clients/customers while reducing the cost of providing services, including traditional services such as customer care, back-office support, IT services, and data processing. Advances in technology have facilitated the creation of new business models that change the ways that services are provided (e.g., a virtual call center). In addition, the maturation of technology has supported the emergence of completely new functions such as language/translation services.

Key Trends and Considerations in Business Process Outsourcing • Improvements in telecommunications infrastructure, which

drives the ability of companies to provide services via remote workforce

• Technologies that further enable companies to provide email, chat, and other multi-channel communications capabilities

• More technology-savvy customers are increasing their use of social and mobile applications, which requires a change in the provision of services

• Leveraging existing location-based infrastructure to provide additional services, which increases utilization and drives significant operating leverage and margins

• Offshore delivery and processes ramping less aggressively than nearshore, onshore delivery; driven by preferences of large, global corporations

• Companies providing shared services that support the increased globalization of their clients (both locations and products)

• Transferring paper and document-based activities to new platforms that make both intake and turnaround of back-office services more efficient

• The ever-rising cost of labor (coupled with attrition) is increasing the need to find more technologically-efficient ways to render services

Leading Companies in Business Process Outsourcing

M&A Themes and Drivers in Business Process Outsourcing • Increase the non-linear nature of business models – i.e., do

not have to hire same ratio of employees to increase revenue as companies have done historically

• Keep pace with technological change

• Acquire delivery/channel capabilities that have been difficult to generate organically

• Improve/accelerate revenue growth and margin profile

M&A and Capital Raising Activity in Business Process Outsourcing Select Recent Relevant M&A and Private Placement Transactions Date Closed Target / Description Acquiror/Investor Deal Value ($mil)

Pending ODesk – virtual employment platform Elance, Inc. - 01/22/14 Scout Analytics Inc – recurring revenue management services ServiceSource 32.5 10/15/13 Thing5 – technology-based solutions for hospitality industry TZP Group - 03/14/13 High Street Partners – provides various business consulting services Investor group 8.0 03/09/13 Interactions, Inc. – provides hosted interactive voice response services Investor group 40.0 11/06/12 ENGAGE pty – provides customer contact center services LivePerson 10.5 08/20/12 Alpine Access – provides distributed BPO services Sykes Corp 150.0 03/21/12 ODesk – virtual employment platform Investor group 15.0 02/07/12 Interactive self-service assets of Microsoft – customer service assets 24/7 Inc. - 01/24/12 Elance, Inc. – online platform for working with freelancers Investor group 16.0




Market Cap ($mil)

03/21/13 West Corp – technology-driven communication services IPO 425.5 1,662.8 03/24/11 ServiceSource – manages service contract renewals IPO 119.4 650.0


http://www.247-inc.com/

http://www.arise.com/

http://www.hsp.com/

http://www.interactions.net/

http://www.languageline.com/

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http://www.servicesource.com/

http://thing5.com/

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Integrated Facilities Management Introduction

Adoption of the integrated facilities management (IFM) model has accelerated over the last several years. IFM service companies generally contract with customers on an exclusive basis to provide services across a suite of trade services while also providing valuable support in the planning, budgeting, and management of facilities. Today, integration of mobile solutions with technology platforms enables provision of asset tracking and management services to customers in addition to more consistent, efficient, and data-rich offerings.

Key Trends and Considerations in Integrated Facilities Management • Customers of IFM services providers are increasingly

centralizing decision-making regarding facilities maintenance and management

• Customers demand broader geographic coverage by their vendors

• Customers are also demanding broader scope of services from their vendors

• Integration of mobile technology (tablets and smartphones) into field service representatives creates better quality controls, richer data, and more efficient operations

• Robust technology has led to development of various methods of service delivery, ranging from SaaS-only solutions to approaches involving employees and third-party vendors who are dispatched to perform the work

Leading Companies in Integrated Facilities Management

M&A Themes and Drivers in Integrated Facilities Management

• Widespread adoption of mobile technology in the field • Strategic focus on better, more efficient management of

facilities and assets in the field

• Private equity interest in IFM has been strong, as financial sponsors have taken control positions or made growth investments in many of the leading companies listed above

M&A and Capital Raising Activity in Integrated Facilities Management

Select Recent Relevant M&A and Private Placement Transactions Date Closed Target / Description Acquiror/Investor Deal Value ($mil)

02/03/14 Dude Solutions Inc. – provides SaaS-based facility management services Warburg Pincus LLC 100.0 12/12/13 National Services, Inc. – provides facility management services Quality Solutions, Inc. - 10/22/13 SMS Assist, LLC – facility maintenance and cleaning services Pritzker Group Venture Capital 45.0 09/30/13 Hara Software, Inc. – facility management technology VERISAE, INC. - 08/26/13 FM Facility Maintenance – provides facility repair and maintenance services Wind River Holdings - 08/19/13 FM Solutions (WorkOasis) – facility management technology VERISAE, INC. - 06/04/13 Ascential Corporation – facility management company FacilitySource Inc. - 12/28/12 VERISAE, INC. – cloud-based facility management software Marlin Equity Partners - 12/18/12 The Miner Corporation – provides repair and maintenance services Total Fleet Solutions - 08/30/12 Marathon Data Systems, LLC – office and field management services Chicago Growth Partners - 07/05/12 Total Fleet Solutions Ltd. – fleet management company CI Capital Partners - 06/03/12 FrontStreet Facility Solutions, Inc. – facility management services Charter Facilities Services - 02/14/12 Quality Solutions, Inc. – provides facility management services Gridiron Capital - 01/20/12 FacilitySource, Inc. – facility management technology Warburg Pincus LLC - 06/22/11 SMS Assist, LLC – facility maintenance and cleaning services Pritzker Group Venture Capital 15.0 01/31/09 First Service Networks – facility maintenance and repair services Wind River Holdings, L.P. -


http://www.frontstreetfs.com/

http://www.qsifacilities.com/

http://corp.servicechannel.com/

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Baird’s Technology-Enabled Services Transaction Experience


A Portfolio Company of

Equity Inv estment byHousatonic Partners

$34,500,000

A Div ision of

Acquisition of

$419,000,000


Sale to

Sale to

$118,600,000Common Stock

Initial Public Offering


Sale to


Follow-on Offering

$180,000,000

Sale to

Acquisition of

$131,000,000

Sale to

$260,000,000

Sale to

Sale to

$488,750,000

0.50%Convertible Senior

Secured Notes

$190,833,000


Sale to

$94,000,000


Sale to

$85,000,000

Sale to


Sale to

Sale to

$157,000,000

Sale to


Sale to

Undisclosed Value

Acquistion of

Library Automation Softw are

$200,000,000

Sale to

$25,000,000

Sale to

Sale to

Sale to


Sale to

$185,000,000

Sale to

Sale to

Ow ned by Management and

Has Been Acquired by

Sale to

_____________________ Note: The transactions noted were selected for their relevance and are not indicative of all Baird transactions. Please visit rwbaird.com/investmentbanking for a complete list of Baird's transactions.

Baird’s Technology-Enabled Services Transaction Experience


$469,560,000

Acquisition of


Follow-on Offering

$229,054,736American Depository Shares


Undisclosed Value

Sale to


Sale to




Follow-on Offering


Sale to

Undisclosed Value


Sale to

Sale to

Sale to


Sale to

Sale to

Undisclosed Value

Acquisition of

Undisclosed Value

Acquisition of


Follow-on Offering

$298,500,000


Sale to



Undisclosed Value

Acquisition of

a portfolio company of

has been sold to

a div ision of



Sale to

Sale to

Baird’s Technology & Services team combines global capital markets capabilities with extensive industry knowledge to offer leading M&A advisory and capital-raising services. Over the past decade, Baird’s Technology & Services team has completed equity transactions that raised more than $25 billion for our clients and advised on mergers and acquisitions with an aggregate value exceeding $20 billion. Our award-winning* Equity Research team covers more than 700 public companies in seven core industries.

_____________________ Note: The transactions noted were selected for their relevance and are not indicative of all Baird transactions. Please visit rwbaird.com/investmentbanking for a complete list of Baird's transactions.

*Baird ranked No.1 for “most trusted research” and No. 1 for “greatest knowledge of companies and industries” for the tenth consecutive year in the 2013 Greenwich Associates Surveys (2004-2013). Surveys conducted with U.S. small-cap and mid-cap fund managers.

Baird’s Technology & Services Team


Senior Leadership Peter Kies

Head of Technology & Services Investment Banking +1.414.765.7262 [email protected]

Greg Ingram Head of Equity Capital Markets +1.414.298.7838 [email protected]

David Silver Head of European Investment Banking +44.207.667.8216 [email protected]

Technology and Services Investment Banking Team

Joel Cohen Managing Director +1.312 609.4924 [email protected]

Louis Draper Managing Director +1.650.858.3821 [email protected]

Jonathan Harrison Managing Director +44.207.667.8414 [email protected]

Chris Hildreth Managing Director +1.312.609.4937 [email protected]

Michael Horwitz Managing Director +1.415.364.3344 [email protected]

Tom Lange Managing Director +1.813.273.8248 [email protected]

John Lanza Managing Director +1.414.298.7669 [email protected]

John Moriarty Managing Director +1.650.858.3811 [email protected]

Kiran Paruchuru Managing Director +1.312.609.4926 [email protected]

Bret Schoch Managing Director +1.312.609.4965 [email protected]

Andrew Snow Managing Director +1.312.609.4972 [email protected]

Bill Suddath Managing Director +1.404.264.2222 [email protected]

Ross Williams Managing Director +1.414.298.6235 [email protected]

Dan Alfe Director +1.312.609.4922 [email protected]

Ben Brown Director +1.414.298.7013 [email protected]

Jordan Klein Director +1.312.609.4978 [email protected]

Martin Luen Director +44.207.488.1212 [email protected]

Chad Moore Director +1.312.609.5475 [email protected]

Brian Sapp Director +1.415.627.3288 [email protected]

Peter Augar Vice President +44.207.667.8263 [email protected]

Robert Bartlett Vice President +1.650.858.3815 [email protected]

Brian Cole Vice President +1.414.298.1702 [email protected]

Matt Kessler Vice President +1.415.627.3223 [email protected]

Kristy Obuchowski Wallen Vice President +1.312.609.7023 [email protected]

Tyler Pace Vice President +1.312.609.4672 [email protected]

Mike Sabo Vice President +1.312.609.4919 [email protected]

Tim Shea Vice President +1.414.298.6203 [email protected]

John Sun Vice President +44.207.667.8224 [email protected]

Erik Szyndlar Vice President +1.650.858.3814 [email protected]

David Tutrone Vice President +1.312.609.7021 [email protected]

James Weck Vice President +1.312.609.4675 [email protected]

Appendix – Disclaimers and Other Disclosures


DISCLAIMERS This is not a complete analysis of every material fact regarding any company, industry or security. The opinions expressed here reflect our judgment at this date and are subject to change. The information has been obtained from sources we consider to be reliable, but we cannot guarantee the accuracy.

ADDITIONAL INFORMATION ON COMPANIES MENTIONED HEREIN IS AVAILABLE UPON REQUEST

The Dow Jones Industrial Average, S&P 500, S&P 400 and Russell 2000 are unmanaged common stock indices used to measure and report performance of various sectors of the stock market; direct investment in indices is not available. Past performance is not indicative of future results.

Baird is exempt from the requirement to hold an Australian financial services license. Baird is regulated by the United States Securities and Exchange Commission, FINRA, and various other self-regulatory organizations and those laws and regulations may differ from Australian laws. This report has been prepared in accordance with the laws and regulations governing United States broker-dealers and not Australian laws.

Copyright 2014 Robert W. Baird & Co. Incorporated. No part of this publication may be reproduced or distributed in any form or by any means without our prior written approval. However, you may download one copy of the information for your personal, non-commercial viewing only, provided that you do not remove or alter any trade mark, copyright or other proprietary notice.

OTHER DISCLOSURES UK disclosure requirements for the purpose of distributing this report into the UK and other countries for which Robert W Baird Limited holds an ISD passport.

This report is for distribution into the United Kingdom only to persons who fall within Article 19 or Article 49(2) of the Financial Services and Markets Act 2000 (financial promotion) order 2001 being persons who are investment professionals and may not be distributed to private clients. Issued in the United Kingdom by Robert W Baird Limited, which has offices at Mint House 77 Mansell Street, London, E1 8AF, and is a company authorized and regulated by the Financial Conduct Authority.

Robert W Baird Limited ("RWBL") is exempt from the requirement to hold an Australian financial services license. RWBL is regulated by the Financial Conduct Authority ("FCA") under UK laws and those laws may differ from Australian laws. This document has been prepared in accordance with FCA requirements and not Australian laws.

*Baird and its operating affiliates have offices in the United States, Europe and Asia. Robert W. Baird & Co. Incorporated. Member SIPC. Robert W. Baird Ltd. and Baird Capital Partners Europe are authorized and regulated in the UK by the Financial Conduct Authority. ©2014 Robert W. Baird & Co. Incorporated.

Robert W. Baird & Co. www.rwbaird.com

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