Software IndustryFinancial Report

Traditional Software, SAAS, and Internet Coverage

November 3, 2016

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SOFTWARE INDUSTRY FINANCIAL REPORT CONTENTS

About AltQuest Group (AQ)

Software Industry Macroeconomics

Public Traditional Software Financial and Valuation Performance

Public SAAS Company Financial and Valuation Performance

Public Internet Company Financial and Valuation Performance

Software Industry M&A Market Update

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OVERVIEW OF ALTQUEST GROUP

Firm Overview

AltQuest Group (AQ) is a boutique investment bank that exists to aid corporate and financial sponsors find and acquire middle market targets in software, manufacturing, healthcare and business services. Deal size coverage is from $5M to $100 in TEV. Buy-side engagements go north of $1bn.

Our M&A team has extensive sector expertise and execution experience:

Focused exclusively on mid-market growth companies

High level access with universe of potential sponsors

Strong experience on buy and sell-side engagements

Strategic and Financial Advisory

Growth Advisory

M&A Advisory

Capital-Raising

Vertical Coverage

Software

• Traditional Software

• SAAS

• Internet

Manufacturing

• Durable Consumer

• Non-durable Consumer

• Aerospace & Defense

• Building Products

• Industrial

• Medical

Healthcare

• Dental Products

• Dental Providers

• Medical Devices & Products

• Medical Product Distribution

• Specialty Providers

• Pharma Services

• Practice Management

• Provider Services

• Long Term & Behavioral Care

Business Services

• Education & Training

• Business Process Outsourcing

• Facility Services & Industrial Services

• Human Resources

• Information Services

• Marketing Services

• Real Estate Services

• IT Services

• Specialty Consulting

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SOFTWARE INDUSTRY MACROECONOMICS

Assuming reasonably stable currency exchange rates, Gartner projected at the outset of 2015 that worldwide IT spending would grow at a constant currency rate of 3.7% in 2015. That was before the significant rise in value of the U.S. dollar against most other currencies, a phenomenon that has had a materially adverse effect on worldwide IT spending. In April, Gartner revised IT spending to grow (in constant currency terms) at a rate of 3.1% in 2015.

In U.S. dollar value terms, global IT spending is projected to shrink 1.3% in 2015, dropping to $3.7 trillion. By 2018, spending is forecast to exceed $4.1 trillion.

Forrester estimates software will account for 27% of all tech spending, leading all other categories. According to Forrester, “Software’s leading position is not a surprise, because it is the focal point for tech innovation today, whether that innovation takes the form of cloud computing and adoption of SaaS, PaaS, smart computing and big data, real-time predictive analytics and smart process apps, or mobile computing and mobile apps and enterprise app stores.”

E-commerce retail sales in the U.S. totaled $82.8 billion in 4Q14 (the latest data available), up 16% YoY. The increase marks the 21st consecutive quarter of YoY growth, and the 17th consecutive quarter of double digit growth.

Mobile commerce accounted for $10.7 billion, or 12.9% of the 4Q14 E-Commerce total, according to comScore. In addition, YoY growth in mobile commerce has been outpacing digital E-Commerce spend for quite some time. In 4Q14, mobile commerce grew at a pace of 28.9%, while desktop commerce expanded by 14.3%.

The digital commerce growth rate of 17% in Q4 far exceeded the 4.4% growth in total consumer discretionary spending, confirming that the shift to online shopping continues unabated.

According to Forrester, U.S. digital ad revenues will total $37.6 billion in 2019, with the most growth coming from video advertising. Forrester predicts video advertising on desktop devices alone will grow 14% annually until 2019, when it will contribute 55% of total desktop display ad revenue across the Web.

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ALTQUEST GROUP TRADITIONAL SOFTWARE INDEX

The AQ Software Index tracks public software companies that primarily offer on-premise software under a perpetual license with annual M&S.

The AQ Software Index is currently comprised of 110 public software companies.

The number of public companies comprising the AQ Software Index has declined steadily over the past ten years, as many on premise providers have been acquired, taken private or migrated to a SaaS business model.

Description Metric

EV/Revenue 6.3x

EV/EBITDA 30.2x

EBITDA Margin 13.7%

Net Income Margin -1.5%

TTM Tota l Revenue ($M) $4,621.1

TTM Tota l EBITDA ($M) $1,078.0

Cash & Eq ($M) $3,245.0

Current Ratio 2.04

Debt/Equity Ratio 66.55

AQ Software: Mean Metrics

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ALTQUEST GROUP TRADITIONAL SOFTWARE INDEX

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ALTQUEST GROUP TRADITIONAL SOFTWARE INDEX CONTINUED

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ALTQUEST SAAS INDEX

The AQ SaaS Index tracks public companies that primarily offer hosted, on-demand software under a subscription and/or transaction based pricing model.

The AQ SaaS Index is currently comprised of 39 publicly traded, pure-play SaaS companies.

Description Metric

EV/Revenue 4.7x

EV/EBITDA 10.6x

EBITDA Margin -6.9%

Net Income Margin -17.0%

TTM Tota l Revenue ($M) $525.0

TTM Tota l EBITDA ($M) $7.6

Cash & Eq ($M) $216.8

Current Ratio 2.13

Debt/Equity Ratio 67.43

AQ SAAS: Mean Metrics

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ALTQUEST SAAS INDEX

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ALTQUEST INTERNET INDEX

Description Metric

EV/Revenue 6.7x

EV/EBITDA 15.2x

EBITDA Margin 7.5%

Net Income Margin -6.6%

TTM Tota l Revenue ($M) $15,564.3

TTM Tota l EBITDA ($M) $4,867.8

Cash & Eq ($M) $13,420.5

Current Ratio 2.65

Debt/Equity Ratio 56.87

AQ Internet: Mean MetricsThe AQ Internet Index tracks public companies that primarily offer B2C and B2B solutions over the Internet using a wide array of pricing models.

The AQ Internet Index is currently comprised of 83 public Internet companies.

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ALTQUEST INTERNET INDEX

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ALTQUEST INTERNET INDEX CONTINUED

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There were 451 reported software M&A transactions in 1Q15. The first quarter tally will likely increase by approximately 15 – 20 transactions as unpublicized deals are added.

Software M&A spending in 1Q15 totaled $17.1 billion, modestly lower than Q4 2014’s $18 billion aggregate price tag. While Q1 featured eleven mega deals (EV>500M), there were few blockbusters, and only one exceeded $2 billion - SS&C Technologies’ $2.6 billion acquisition of financial services software provider, Advent Software. Comparatively, 3Q14’s $43.5 billion M&A spend included six transactions with an enterprise value north of $2 billion, led by SAP’s $7.7 billion acquisition of Concur .

Other 1Q15 mega deals during included DH Corporation’s acquisition of Fundtech ($1.3B EV, 4.8x EV/Revenue multiple); Lexmark International Technology’s acquisition of Kofax ($1.0B, 3.2x); and Harman International Industries’ acquisition of Symphony Teleca ($780 million, 2.1x).

Megadeals aside, most buyers continued to focus on small and mid-sized acquisitions in 1Q15, consistent with their response to our 2015 Buyers Survey, in which 95% of respondents indicated they would focus in 2015 on deals in the range of $10M - $99M.

SOFTWARE INDUSTRY M&A MARKET UPDATE