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PRIVATE AND CONFIDENTIAL TECHNOLOGY FOCUS. BROAD REACH. OPTIMAL RESULTS.
Technology Private Capital Market Update
Q3 2013
Peter Falvey
Managing Director
P. 1.617.598.0437
Jeffrey Monk
Analyst
P. 1.617.598.0445
Jeffrey Cook
Vice President
P. 1.617.598.0439
2
I. Technology Private Equity Market Update
3
$5.1
$0.6
$5.5
$11.3
$4.4
$2.7
$8.1 $7.3
$10.3 $9.4 $9.4
$8.9
$6.7 $6.1
$11.0 $11.1
$4.0
$8.9
$11.7
76 79
91
112 115
68
113 109
117
139
114 109
133
123
117
135
100
139 141
0
20
40
60
80
100
120
140
160
$0.0
$2.0
$4.0
$6.0
$8.0
$10.0
$12.0
$14.0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2009 2010 2011 2012 2013
De
al Co
un
t A
mo
un
t In
vest
ed
Total Capital Invested ($B) Deal Count
Technology Private Equity Investing Posts Record Quarter...
TECHNOLOGY PRIVATE EQUITY INVESTING ACTIVITY
Source: PitchBook. Data Includes closed transactions only.
* Capital invested data excludes transactions with undisclosed transaction amounts.
Following a weak first half of 2013, large deals helped drive a rebound in Q3, with total
capital invested reaching $11.7B, the highest level in the post-recession era
($B)
4
...as Middle Market Leveraged Lending Trends Improve
The leveraged loan market continues to improve, fueled by low rates and availability of debt
MIDDLE MARKET LEVERAGED CASH FLOW TRENDS
KEY BASELINE INTEREST RATES
Source: Market Intelligence
Rate October 2013 October 2012
Fed Funds Target Rate 0.25% 0.25%
US Prime Rate 3.25% 3.25%
3-Month LIBOR 0.24% 0.31%
Metric October 2013 October 2012
CF Senior Debt (x EBITDA): 1.50 - 2.50x 1.50 - 2.25x
Total Debt Limit (x EBITDA): 3.00 - 4.25x 3.00 - 4.00x
Senior Cash Flow Pricing L+ 3.5% - 4.5% (bank)
L+ 4.5% - 6.5% (non-bank)
L+ 3.0% - 4.5% (bank)
L+ 4.5% - 6.0% (non-bank)
Subordinated Debt Pricing 14.0% - 17.0% 14.0% - 17.0%
"One Stop" Pricing: 9.0% - 11.5% Fixed
L+ 7.5% - 9.0% Floating
10.0% - 11.5% Fixed
L+ 9.0% - 10.0% Floating
Minimum Equity Contribution 25% - 35% 25% - 35%
5
Private Equity Fundraising Remains at Record Levels...
PRIVATE EQUITY FUNDRAISING ACTIVITY BY QUARTER
Source: PitchBook. Data Includes closed transactions only.
* Capital invested data excludes transactions with undisclosed transaction amounts.
The success of smaller funds and an absence of new mega-funds has resulted in a
median fund size of $255M in Q3 2013, $100M lower than the year-ago period
($B)
$66 $35
$10
$29
$17 $12
$6 $9
$44
$16 $16 $16
$26
$40
$20 $25 $25
$48
$24
49
30
11
27
40
26
20
31
45
27 27
31
36 38
26 28
29 30
46
0
10
20
30
40
50
60
$0
$10
$20
$30
$40
$50
$60
$70
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2009 2010 2011 2012 2013
# o
f Fu
nd
s
Cap
ita
l R
ais
ed
Total Capital Raised ($B) Number of Funds
6
$30
$57
$31
$18
$66
$109
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
$0
$20
$40
$60
$80
$100
$120
2007 2008 2009 2010 2011 2012
Cum
ula
tive
Ove
rha
ng
($B
) Ove
erh
an
g b
y V
inta
ge
($
B)
Cumulative Overhang Overhang by Vintage
...as Firms Continue to Chip Away at the Near-Record Overhang
Significant amount of ‘dry powder’ built-up from large fund raises prior to the financial crisis
Successful fundraising in recent quarters ensuring no shortcoming of dry powder in coming
years
Source: PitchBook
PE FUNDRAISING BY YEAR
Source: PitchBook
CAPITAL OVERHANG BY VINTAGE
Cumulative Overhang
$348B
PE Firms continue to chip away at the significant amount of ‘dry-powder’ while the
fundraising environment continues to improve
$239 $223 $140 $44 $91 $111 $105
272
235
117 117
130 128
97
0
50
100
150
200
250
300
$0
$50
$100
$150
$200
$250
$300
2007 2008 2009 2010 2011 2012 2013*
Capital Raised ($B) # of Funds
7
Technology Private Equity Portfolio Company Exits Rebound
TECHNOLOGY PRIVATE EQUITY PORTFOLIO COMPANY EXIT ACTIVITY
Source: PitchBook. Data Includes closed transactions only.
* Total exit value data excludes transactions with undisclosed transaction amounts.
After a weak H1 2013, tech PE portfolio company sales posted a record quarter, with
37 exits contributing to $32.8B in exit value
($B)
$6.4 $0.6 $1.6
$6.4
$10.9
$4.3
$7.5
$12.4 $11.3 $10.2 $10.7
$5.1
$13.8
$7.2
$25.0
$14.1
$7.5 $7.0
$32.8
8
19
14
23
31
21
38
41 39
41
36 36
48
25
38
43
34
31
37
0
10
20
30
40
50
60
$0.0
$5.0
$10.0
$15.0
$20.0
$25.0
$30.0
$35.0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2009 2010 2011 2012 2013
Exit C
ou
nt E
xit
Valu
e
Total Exit Value ($B) Exit Count
8
$35
$85 $80
$76
$70
$43
$65
$47
$23
$119
$50 $50 $51 $50
$0
$20
$40
$60
$80
$100
$120
$140
1Q'11 2Q'11 3Q'11 4Q'11 1Q'12 2Q'12 3Q'12 4Q'12 1Q'13 2Q'13 3Q'13 YTD2011
YTD2012
YTD2013
Larger Deals Fueling Strategic Technology M&A Activity
Technology M&A market marked by consolidation from major tech acquirers as they
snap up sector leaders leading to fewer, but larger deals
STRATEGIC M&A MEDIAN DEAL SIZE
Source: PitchBook
NOTABLE CASH POSITIONS
$50.6B
$11.8B
$10.2B
$79.9B
$39.1B
$13.3B
$5.8B
36 $1B+ strategic
acquisitions since
beginning of 2011
$10.6B
($MM)
9
$0.6
$1.7
$0.4 $0.5 $1.0
$2.3
$1.6 $1.1
$4.8
$0.3
$1.6 $1.6
$0.9 $0.7 $1.0
$0.4
$2.5
$1.1 0
5
2
3
5
14
12
11
9
17
3
7
12
9
6
5 5
14
9
0
2
4
6
8
10
12
14
16
18
$0.0
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2009 2010 2011 2012 2013
IPO
Co
un
t
Am
ou
nt
Rais
ed
Amount Raised ($B) IPO Count
Technology IPO Market Rebounding
Source: PitchBook, CapitalIQ
TECHNOLOGY IPO MARKET
Capital Raised
Excludes Facebook’s
$16B IPO
After a weak start to 2013, the inconsistent / sporadic tech IPO market is beginning to
stabilize, posting a solid Q2 – Q3 of 23 IPOs accumulating $3.6B in raised capital
($B)
10
Recent High-Profile Technology Transactions
Robust demand and activity in SaaS, e-learning and social media sectors
Interest from PE and strategic buyers driving valuations higher
─ Dell bidding war between Silver Lake and Icahn Enterprises
─ Quest bidding war between Dell and Insight Venture Partners
PRIVATE EQUITY STRATEGIC
August 2012
Has received an
investment from
July 2012
Has been
acquired by
August 2012
Has been
acquired by
May 2012
Has been
acquired by
August 2012
Has been
acquired by
December 2011
Has been
acquired by
September 2012
Has been
acquired by
January 2012
Has been
acquired by
May 2012
Has been
acquired by
December 2012
Has been
acquired by
November 2012
Has been
acquired by
May 2013
Has been
acquired by
January 2013
Has been
acquired by
May 2013
Has been
acquired by
May 2013
Has been
acquired by
August 2012
Has been formed by
portfolio companies of
April 2012
Has been
acquired by
June 2013
Has been
acquired by
June 2013
Has been
acquired by
June 2013
Has been
acquired by
June 2013
Has been
acquired by
June 2012
Has been
acquired by
September 2013
Has been
acquired by
Devices & Services
Business
October 2013
Has been
acquired by
11
II. Venture Capital Market Update
12
Overall Venture Capital Investing Continues to Rise…
Venture capital investing has continued at its steady incline through 2013. The $7.8B
invested in Q3 represents the largest quarterly outflow of VC since Q2 2011
QUARTERLY VENTURE CAPITAL INVESTING ACTIVITY
Source: NVCA, PWC MoneyTree
($B)
$3.8
$5.1 $5.4
$5.9
$5.1
$7.1
$5.4 $5.7
$6.5
$8.2 $7.5 $7.4
$6.3
$7.4
$6.6 $6.8
$6.0
$7.0
$7.8
681
762 765
941
821
1,023
886 910 904
1,081
1,015 991
876
979 937
1,034
906
956
1,005
-
200
400
600
800
1,000
1,200
$0.0
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
$7.0
$8.0
$9.0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2009 2010 2011 2012 2013
Deal C
ou
nt
Am
ou
nt
Inv
este
d
Amount Invested ($B) Deal Count
13
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
3Q'11 4Q'11 1Q'12 2Q'12 3Q'12 4Q'12 1Q'13 2Q'13 3Q'13
Seed Early Stage Expansion Later Stage
…as Early-Stage Deals Continue to Gain Momentum
Early-stage deals continue to gain momentum, rising sharply after a weak Q1 and
outpacing both expansion and later-stage deals in the previous two quarters
Source: NVCA, PWC MoneyTree
($B)
QUARTERLY VENTURE CAPITAL INVESTING ACTIVITY
14
VC Fundraising Still Lagging
$11.6B has been raised by VCs YTD in 2013, significantly below levels seen for the
same period in recent years
QUARTERLY VC FUNDRAISING
Source: NVCA, PWC MoneyTree
NOTABLE RECENT FUNDS
$3,500M
$2,600M
$2,000M
$1,250M
$900M
$750M
$2,700M
($B)
$8.1
$2.7 $2.1
$6.1
$4.8
$6.3
$5.2
$3.4
$4.3
$3.2
$4.1
$12.9
$16.4
$11.6
$0.0
$2.0
$4.0
$6.0
$8.0
$10.0
$12.0
$14.0
$16.0
$18.0
1Q'11 2Q'11 3Q'11 4Q'11 1Q'12 2Q'12 3Q'12 4Q'12 1Q'13 2Q'13 3Q'13 YTD2011
YTD2012
YTD2013
15
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
2007 2008 2009 2010 2011 2012
Cumulative Overhang
VC Overhang Continues to Dwindle Amid Smaller Funds
Average VC fund size has been cut in half since peaking in 2011
Stable investing during slower recent fundraising quarters contributing to decrease in dry
powder
Source: PitchBook
AVERAGE VC FUND SIZE
Source: PitchBook
VC CAPITAL OVERHANG
Cumulative Overhang
$53B
At the current investing rate it will take ~8 quarters for VC firms to wipe out the
current amount of VC ‘dry powder’
$270
$215
$178
$201
$301
$191
$149
$0
$50
$100
$150
$200
$250
$300
$350
2007 2008 2009 2010 2011 2012 2013*
Average Fund Size ($M)
* As of 6/30/13
($MM) ($B)
16
$0.0
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
$7.0
$8.0
$9.0
1Q'09 2Q'09 3Q'09 4Q'09 1Q'10 2Q'10 3Q'10 4Q'10 1Q'11 2Q'11 3Q'11 4Q'11 1Q'12 2Q'12 3Q'12 4Q'12 1Q'13 2Q'13 3Q'13
Capital
Inflows
Stable VC Investing Overshadowing Decreased Fundraising
While VCs continue to put capital to work from prior funds, capital inflows are well
below 2011 highs and are still tracking lower
QUARTERLY VC INFLOWS / OUTFLOWS
Source: NVCA, PWC MoneyTree
($B) Capital
Outflows
17
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3
2010 2011 2012 2013
Software Companies Continue to be Most Attractive Targets for VCs
$3.6B invested in software companies in Q3 represents 46 percent of all VC invested
dollars. Later-stage raisings continue to attract majority of software VC
VC
AL
LO
CA
TE
D T
O S
OF
TW
AR
E
SO
FT
WA
RE V
C I
NV
ES
TIN
G
46% of all VC dollars
invested in Q3 went to
software companies
Source: NVCA, PWC MoneyTree
($MM)
$195 $184 $336 $287 $338 $464 $502
$359 $347 $445
$510 $563 $524 $468 $627 $851
$1,270 $966 $1,208 $1,186 $1,350
$1,735 $1,827 $1,399
$2,124 $1,509 $1,684 $1,786 $1,819
$2,939
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3
2010 2011 2012 2013
First Sequence Financing ($MM) All Other Stages ($MM)
18
Corporate VCs Post Record Quarter of Investing
Corporate VCs invested $909M in Q2 2013, the highest level in over 4 years and a 23%
increase over the high seen in Q2 2011
QUARTERLY CORPORATE VC INVESTING ACTIVITY
Source: NVCA, PWC MoneyTree
($MM)
$223
$359
$296
$463
$371
$665
$441 $437 $461
$742
$554 $533
$514
$572
$686
$494 $473
$909
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2009 2010 2011 2012 2013
19
Falvey Partners Snapshot
FOCUS SELECT, RELEVANT TRANSACTION EXPERIENCE
December 2011
Has acquired
July 2012
Has been
acquired by
September 2011
Series D
Convertible
Preferred Stock
led by
September 2012
Has been
acquired by
A portfolio company of
July 2011
Has been acquired
by a portfolio
company of
April 2011
Has been
acquired by
July 2011
Has been
acquired by
February 2011
Growth equity
investment from
November 2010
Has received an
investment from
A portfolio company of
October 2010
PGI Notify and Send
platforms acquired by
August 2010
Series C
Convertible
Preferred Stock
Led by
SERVICES
Sell-side or buy-side M&A
Growth capital raising
Board and corporate advisory
SECTOR
Software / SaaS
Tech-enabled business services
IT services
Internet / digital media
COMPANY TYPE
$50M - $250M in enterprise value
Growing, with established scale
Profitable or near-term path to profitability
We are an entrepreneurial investment banking firm focused exclusively on capital
raising and M&A for leading software companies
Founded in 2012 by Peter Falvey and key members of the Morgan Keegan / Revolution Partners team
Falvey Partners professionals have closed dozens of software transactions representing billions of
dollars in transaction value
August 2004
Has been
recapitalized by
Sell-Side Advisor
Ecommerce
Software Provider
Project
Bay
Sell-Side Advisor
Enterprise
Mobility Software
Provider
Project
Swift
Placement Agent
Web Infrastructure
Software Provider
Project
Anthem
Sell-Side Advisor
Project
Port
Content
Management
Software Provider
Placement Agent
Project
Leaf
Cloud Accounting
Software Provider
December 2012
Retail
Marketing
Software Strategic Minority
Investment