Acuity Market ReviewIndustrial Internet of Things (“IIoT”) Sector – 2017 Review

Confidential | May 2018

©Acuity Advisors Limited

1Acuity Advisors | Semiconductor Industry Market Review | Jan 2018Acuity | IIoT Industry Market Review | May 2018 1

1.2x

1.2x

1.1x

2.6x

3.7x

1.5x

1.4x

1.7x

1.1x

1.2x

2.8x

3.5x

2.1x

1.5x

Introduction

Market Dynamics

IIoT Share Price by Sub-Sector (CY16–17, Rebased to 100)

Acuity Market Review: IIoT Sector – 2017 Review

Sub-Sectors

IIoT Trading Comparables (CY16–17)

Median EV/Revenue

Median EV/EBITDA

CY17 YoY Rev Growth

6%Automotive9.6x

13.4x

12.2x

13.7x

13.5x

14.4x

11.1x

12.5x

15.1x

11.6x

12.2x

16.9x

15.6x

13.3x

CY17 EBITDA Margin

CY 16 CY 17

▪ IIoT is still at an early stage of

evolution. Early adopters have invested

heavily to connect vehicles, buildings,

infrastructure and industrial assets.

▪ Over the next decade, IIoT is expected

to be a principal driver of global

productivity and growth. However, to

fully exploit these opportunities,

businesses and governments must

strengthen their efforts and accelerate

investment in the sector.

▪ As the cost of sensors continues to

decline drastically (average cost of

$0.38 in 2020 from $1.30 in 2004),

smaller firms can now afford solutions,

augmenting the rapid adoption of IIoT.

▪ Trading multiples for listed IIoT

companies are robust with EV/revenue

multiples of 1x–4x+ and EV/EBITDA

multiples of 10x–17x. Smart cities,

transportation and healthcare are

trading at the higher end of the range.

▪ Growth is strong across all sectors as

market leaders and smaller players

focus on investing in adoption including

hardware roll-out (hence the lower

EBITDA margins across the sector).

▪ To futureproof business models and

establish a footprint across IIoT

markets, acquisitions and consolidation

will continue to be a key focus for

industrial and technology firms in the

near and medium term.

▪ The digital revolution over the past decade redefined business-to-consumer industries such as banking, financialservices, and insurance (BFSI), media and retail. However, in the next 10 to 15 years, the Industrial Internet ofThings (IIoT) will dramatically alter the transportation, automotive, industrial, healthcare, energy, manufacturing,smart cities and smart buildings sectors, accounting for almost two-thirds of the global economy1.

▪ According to research by Grand View, the value of the global IIoT market was estimated at $100bn in 2016, and isanticipated to expand at a CAGR of over 25% to $934bn by 2025, buoyed by technological advancements in thesemiconductor and electronics industries, raising demand for and adoption of cloud computing, thetransformational impact of data analytics and machine learning as well as the evolution of industrial automation.

Source: Capital IQ, Thomson Reuters Eikon, Acuity IntelligenceNote: 1Oxford Economics

38.8%44.1%

16.7%

45.5%56.8%

22.1%

1Q 16 2Q 16 3Q 16 4Q 16 1Q 17 2Q 17 3Q 17 4Q 17

Industrials

Smart Buildings

Smart City

Transportation

Others

Healthcare 13%

15%

30%

19%

10%

15%

6%

3%

7%

6%

11%

6%

8%

50.0

100.0

150.0

200.0

Transportation Automobiles Healthcare

Smart City Smart Buildings Industrials

Others

1

15.7%

2Acuity Advisors | Semiconductor Industry Market Review | Jan 2018Acuity | IIoT Industry Market Review | May 2018 2

Global Mid-Market1 M&A Deal Values by Sub-Sector (CY16-17)

Transactions Analysis

8

14

8

14

11

18

14

8

1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17

Source: Capital IQ, Company Websites, Acuity IntelligenceNote: 1Mid Market – Deals with transaction values up to $1.0bn

22%

19%58%

$3,934m

2016

2017

Deal Volume

Acuity Market Review: IIoT Sector – 2017 Review

Global Mid-Market M&A Deal Volumes (CY16–17)

Date: 18/09/17Value: $956.6m

EV/Revenue: 1.9x

Acquired By

Date: 06/09/17Value: $761.8m

EV/Revenue: 4.8xEV/EBITDA: 17.0x

Acquired By

Top Mid-Market1 Deals (CY17)

▪ Acquiring IIoT capacities has become a strategic priority for both global technology and wider industrial players

driven by technology capability, new market access and buying into digital technologies that transform the wider

industrial landscape disrupting traditional business models.

▪ The mid-market segment registered strong activity levels, with the global deal volume in 2017 totalling over 50

deals ($3.8b in disclosed values). Telematics & transportation technologies represented about 50% of the 2017

deals. Deals were executed across multiple buyer categories: 42 different buyers made acquisitions in 2017.

▪ The larger deals demonstrate several key M&A trends: acquisition of complementary IIoT technology (Itron’s

acquisition of Silver Spring in smart energy and networks sector), extension of IIoT capabilities (Fortive’s acquisition

of smart gas detection solutions business Industrial Scientific) and specialist IIoT platform acquisition (ABAX’s

acquisition by Investcorp, a buy and build European vehicle telematics platform).

Date: 27/07/17Value: $600.0m

EV/Revenue: 3.9x

Acquired By

Date: 09/02/17Value: $382.5m

EV/Revenue: 3.5xEV/EBITDA: 29.6x

Acquired By

Date: 01/06/17Value: $210.0m

EV/Revenue: 3.8xEV/EBITDA: 17.8x

Acquired By

47%

7%14%

32%

$3,826m

Industrials Smart City Transportation Others

3Acuity Advisors | Semiconductor Industry Market Review | Jan 2018Acuity | IIoT Industry Market Review | May 2018 3

Global M&A Mid Market1 Deal Volumes by Geography (CY16–17)

Transactions Analysis (Cont.)

Source: Capital IQ, Company Websites, Acuity IntelligenceNote: 1Mid Market – Deals with transaction values up to $1.0bn

Acuity Market Review: IIoT Sector – 2017 Review

▪ North America and Europe were the major centers for acquisitions in 2016-17 with c.80% of total deals being

completed in these regions. We believe this trend is driven by different levels of maturity in each geography;

buyers want scale and proven solutions, therefore focusing acquisitions on the more developed markets.

▪ Cross-continent acquisitions are in the minority: acquirers have focused on their local geographies to build

capability and scale first before moving to other geographies. A handful of the bigger US and European companies

are now moving outside of their home markets. Our view is that this is driven by buyers’ adoption and

understanding of IIoT technologies: buyers want to adopt technologies locally before wider roll-out, conscious of

differing user cases, legislation and local market requirements (e.g. differing vehicle regulations market to market).

39%61%

15%85%

85%15%

16%78%

3%3%

14%

14%

72%

41%39%

Headquarters of acquirers of North American Targets

Headquarters of acquirers of European Targets

Headquarters of acquirers of Asian Targets

Headquarters of IIoT Targets

North America

Europe

Asia

Europe Asia OthersNorth AmericaRoW

4Acuity Advisors | Semiconductor Industry Market Review | Jan 2018Acuity | IIoT Industry Market Review | May 2018 4

▪ The level of consolidation in each sub-sector is,

in part, driven by the size and maturity of both

sellers and strategic acquirors e.g. the

transportation vertical had seen 40+

transactions prior to 2016, including $4bn

across 3 significant Verizon acquisitions. The

Smart City vertical, in contrast, saw less than

25% of this volume during that period.

▪ Pricing continues to be strong for high growth

and differentiated businesses but multiples are

focused on both revenue and growth coupled

with more traditional EBITDA metrics.

▪ Median levels of pricing are in the range of 2.5x

to 3.5x revenues and double digit EBITDA

multiples. Buyers continue to focus on recurring

revenue levels (and churn) to provide part of

the rationale underpinning strong deal pricing.

▪ We believe the sector will continue to witness a

wave of investments from strategic and private

equity players, moving from conventional

companies in their portfolios to IIoT-capable

technologies that enable new business models.

IIoT Precedent Transactions (CY16–17) – EV/Revenue Multiples

IIoT Precedent Transactions (CY16–17) – EV/EBITDA Multiples

Acuity Market Review: IIoT Sector – 2017 Review

Valuation Analysis

1.7X 1.1X 1.5X 1.7X

7.4x

4.1x 4.0x

9.0x

1.9X 1.5X

3.0X4.2X

Industrials Smart City Transportation Others

Max

Median

Min

10.0X 13.3X 10.0X 13.7X

11.6x

21.5x

17.8x

29.6x

10.8X

14.4X12.5X

17.0X

Industrials Smart City Transportation Others

Max

Median

Min

▪ We know the Industrial IoT sector – that’s why we’re

the trusted M&A advisors across this market. We

continue to be the most active and successful

European Mid-Market Investment Bank in the sector.

▪ We are skilled at getting to the heart of a technology

business, understanding what will attract buyers, and

building long-lasting relationships with our clients.

We have an extensive network across the global IIoT

eco-system.

▪ We have an unrivalled understanding of the

industry’s complexities, drivers and personalities –

our track record and client feedback are compelling

evidence of that.

▪ We’re an international firm – most of our deals are

cross-border from offices in London, Munich,

Shanghai and Silicon Valley. We move quickly when

it’s needed, and we’re around for the long haul when

patience is a virtue.

24 People4 Offices 9 IIoT Projects

CY16–17

5-Year Track

Record Strategic Exit

Acquired by

Strategic Exit

Acquired by

Source: Capital IQ, Acuity Intelligence

About Acuity

Strategic Exit

Acquired by

Strategic Exit

Acquired by

5Acuity Advisors | Semiconductor Industry Market Review | Jan 2018

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