Headwaters MB 1Q 2016 Technology Sector Update: Marketing and Advertising

Technology Sector Update:

Marketing and Advertising 1Q 2016

Member FINRA

• Capital Markets – U.S. Marketing and Advertising companies continue to outpace their international counterparts and outperform the NASDAQ, S&P 500 and MSCI Europe indexes

• Trading Multiples – U.S. Marketing and Advertising companies are trading at a median LTM revenue multiple of 1.0x, while International Marketing and Advertising companies are trading at a median LTM revenue multiple of 3.4x

• M&A Activity – M&A activity declined in 1Q 2016, with 38 deals compared to 53 deals in 4Q 2015, with aggregate transaction also decreasing. Notable recent transactions include Telenor’s acquisition of Tapad ($360M), RTL Group’s acquisition of Smartclip ($53M), and Time’s acquisition of Viant (price undisclosed)

• Investment Activity – Investment volume and aggregate values remained relatively steady in 1Q 2016 with 64 investments and $577M in value, from 64 investments and $622M in value in 4Q 2015. Notable recent investments include Seat Pagine ($127M), Yello Mobile ($73M), and BloomReach ($56M)

Executive Summary

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Key Themes We are Watching in 2016

• New technologies are driving customer adoption of both MarTech and AdTech as marketing departments emerge as a competitive differentiator for enterprises

– Rapid Adoption – Marketers are rapidly adopting both point solutions and platforms as advertising technologies enable new ways of conducting business and acquiring customers

– Metrics Matter – Metrics continue to grow in importance – attribution and conversion metrics drive marketer’s decisions – on which technologies to buy, and to properly evaluate spend and ROI across all marketing tactics

• Marketing moves up the funnel with significant efficiency improvements

– Rather than targeting large audiences and then spending significant time and resources whittling them down, emerging technologies and analytics are becoming accurate enough to effectively disrupt the traditional sales funnel model

– Marketers expand beyond retargeting by investing and spending on understanding intent and marketing higher in the funnel as opposed to “preaching to the converted”

• M&A activity remains strong for the near future, driven by:

– Traditional buyers building out their marketing platforms, stacks or data assets

– New categories of buyers continue to emerge, in marketing agencies adopting technology, data providers levering their data assets into new markets, telcos and media

– Lowering valuation expectations – investors in crowded sectors of digital marketing recognizing a solid exit is better than no exit

• Funding is both available at higher scale, and scarce at lower scale

– Companies that have demonstrated business models with solid margins and ability to scale will continue to find funding available for growth

– However, companies seeking series A and B rounds with limited traction or proof points will likely struggle finding attractive capital and valuations

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Capital Markets Performance

Since 2013, U.S. Marketing and Advertising companies (+103.4%) have outperformed the NASDAQ (+56.5%), S&P 500 (+40.8%), and MSCI Europe (-0.4%) indexes, along with their international counterparts (+50.8%)

Source: Capital IQ; refer to public comps for constituents

-20.00%

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

NASDAQ: +56.5%

MSCI Europe: -0.4%

S&P 500: +40.8%

Int'l. Marketing & Advertising Companies: +50.8%

U.S. Marketing & Advertising Companies: +103.4%

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6.0x

4.4x

2.3x

5.7x

1.8x

0.5x

0.0x

1.0x

2.0x

3.0x

4.0x

5.0x

6.0x

7.0x

LTM Revenue Multiple

Marketing and Advertising Comparable Public Companies

International Marketing and Advertising Companies

U.S. Marketing and Advertising Companies

6.2x 6.1x

1.4x

3.4x 2.9x

3.8x

3.1x

1.0x 0.3x 0.4x

0.7x 0.5x

0.2x 0.2x 0.3x

0.0x

2.0x

4.0x

6.0x

8.0xLTM Revenue Multiple

Median: 1.0x

Median: 3.4x

Source: Capital IQ; companies arranged by descending enterprise value

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Trading Metrics($ in millions, except per share data) Stock

Price 52-Week Price Range Market Enterprise EV / Revenue EV / EBITDA

Company Ticker 03/31/16 Low High Cap. Value LTM CY 2016E CY 2017E LTM CY 2016E CY 2017E

U.S. COMPANIES

Google NasdaqGS:GOOGL $762.90 $529.00 $810.35 $527,772 $463,494 6.2x 5.3x 4.7x 19.0x 13.0x 11.2x

Yahoo! NasdaqGS:YHOO 36.81 26.15 46.17 34,969 30,415 6.1x 8.7x 8.4x NM 40.8x 34.2x

IAC/InterActive NasdaqGS:IAC 47.08 38.82 84.66 3,680 4,390 1.4x 1.3x 1.2x 11.4x 7.9x 6.7x

Endurance International NasdaqGS:EIGI 10.53 7.45 23.49 1,448 2,521 3.4x 2.1x 1.9x 13.8x 6.3x 5.5x

comScore NasdaqGS:SCOR 30.04 26.21 65.00 1,170 1,057 2.9x 2.0x 1.7x 28.4x 8.5x 6.5x

Marketo NasdaqGS:MKTO 19.57 12.86 33.99 907 807 3.8x 3.0x 2.3x NM NM NM

Rubicon Project NYSE:RUBI 18.28 11.72 19.21 915 776 3.1x 2.6x 2.2x 40.8x 13.1x 9.2x

Jive Software NasdaqGS:JIVE 3.78 2.84 5.99 289 187 1.0x 0.9x 0.9x NM 33.2x 17.1x

RocketFuel NasdaqGS:FUEL 3.15 2.61 9.66 137 143 0.3x 0.3x 0.3x NM 22.8x 8.4x

QuinStreet NasdaqGS:QNST 3.42 2.65 6.82 155 119 0.4x 0.4x 0.3x NM 7.2x 4.4x

Marin Software NYSE:MRIN 3.02 2.61 7.62 114 80 0.7x 0.7x 0.7x NM 18.3x 8.8x

Marchex NasdaqGS:MCHX 4.45 3.08 5.32 187 78 0.5x 0.5x 0.5x 41.4x 18.4x 9.0x

ReachLocal NasdaqGS:RLOC 1.79 0.55 3.50 54 65 0.2x 0.2x 0.2x NM 4.1x 3.7x

Sizmek NasdaqGS:SZMK 2.90 2.68 7.91 84 42 0.2x 0.2x 0.2x 4.6x 2.6x 2.0x

MaxPoint NYSE:MXPT 1.77 1.16 10.14 47 37 0.3x 0.4x 0.4x NM NM NM

High 6.2x 8.7x 8.4x 41.4x 40.8x 34.2x

Mean 2.0x 1.9x 1.7x 22.8x 15.1x 9.7x

Median 1.0x 0.9x 0.9x 19.0x 13.0x 8.4x

Low 0.2x 0.2x 0.2x 4.6x 2.6x 2.0x

INTERNATIONAL COMPANIES

Baidu NasdaqGS:BIDU 190.88 100.00 223.95 66,196 61,686 6.0x 5.0x 4.0x 22.9x 19.6x 14.9x

Yahoo! Japan TSE:4689 4.26 3.58 5.14 24,313 20,548 4.4x 2.6x 2.4x 11.8x 9.1x 8.6x

Rakuten TSE:4755 9.66 8.39 21.32 13,764 13,755 2.3x 1.8x 1.6x 11.1x 8.7x 7.6x

Yandex NasdaqGS:YNDX 15.32 9.94 21.36 4,936 4,728 5.7x 4.5x 3.8x 20.2x 13.2x 9.9x

Criteo NasdaqGS:CRTO 41.42 24.23 57.30 2,714 2,375 1.8x 3.3x 2.7x 20.8x 11.6x 8.8x

Matomy LSE:MTMY 1.21 1.20 2.88 113 135 0.5x 0.4x 0.4x 5.4x 4.1x 3.5x

High 6.0x 5.0x 4.0x 22.9x 19.6x 14.9x

Mean 3.5x 3.0x 2.5x 15.4x 11.0x 8.9x

Median 3.4x 3.0x 2.6x 16.0x 10.4x 8.7x

Low 0.5x 0.4x 0.4x 5.4x 4.1x 3.5x

Public Trading Comparables: Marketing and Advertising Tech

_______ Source: Capital IQ

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Operating Metrics($ in millions, except per share data)

LTM Revenue Growth LTM Revenue EBITDA

Company Ticker As Of '15A-'16E '16E-'17E GM LTM CY 2016E CY 2017E LTM CY 2016E CY 2017E

U.S. COMPANIES

Google NasdaqGS:GOOGL Dec 2015 17% 14% 62% $74,989 $87,408 $99,445 $24,423 $35,520 $41,449

Yahoo! NasdaqGS:YHOO Dec 2015 (30%) 3% 58% 4,968 3,501 3,605 331 745 890

IAC/InterActive NasdaqGS:IAC Dec 2015 4% 8% 76% 3,231 3,367 3,621 384 556 658

Endurance International NasdaqGS:EIGI Dec 2015 59% 12% 43% 741 1,179 1,321 183 397 459

comScore NasdaqGS:SCOR Dec 2015 41% 20% 69% 369 521 623 37 124 163

Marketo NasdaqGS:MKTO Dec 2015 30% 27% 66% 210 273 346 (56) NA 6

Rubicon Project NYSE:RUBI Dec 2015 18% 23% 76% 248 293 360 19 59 85

Jive Software NasdaqGS:JIVE Dec 2015 4% 2% 63% 196 203 208 (21) 6 11

RocketFuel NasdaqGS:FUEL Dec 2015 (2%) 3% 42% 462 451 466 (34) 6 17

QuinStreet NasdaqGS:QNST Dec 2015 17% 11% 10% 284 333 371 (4) 17 27

Marin Software NYSE:MRIN Dec 2015 3% 7% 63% 109 111 119 (21) 4 9

Marchex NasdaqGS:MCHX Dec 2015 (1%) 1% 45% 143 142 143 2 4 9

ReachLocal NasdaqGS:RLOC Dec 2015 (18%) 5% 44% 383 315 332 (17) 16 18

Sizmek NasdaqGS:SZMK Dec 2015 8% 8% 61% 173 186 201 9 16 21

MaxPoint NYSE:MXPT Dec 2015 (33%) 6% 51% 140 93 99 (17) NA 0

INTERNATIONAL COMPANIES

Baidu NasdaqGS:BIDU Dec 2015 21% 24% 66% 10,224 12,311 15,291 2,698 3,152 4,143

Yahoo! Japan TSE:4689 Dec 2015 1% 9% 68% 4,683 7,802 8,517 1,735 2,258 2,383

Rakuten TSE:4755 Dec 2015 26% 12% 16% 5,936 7,492 8,428 1,242 1,575 1,813

Yandex NasdaqGS:YNDX Dec 2015 26% 19% 72% 832 1,044 1,247 235 359 475

Criteo NasdaqGS:CRTO Dec 2015 37% 23% 36% 1,323 718 883 114 205 271

Matomy LSE:MTMY Dec 2015 27% 10% 23% 271 343 377 25 33 38

_______ Source: Capital IQ

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Public Trading Comparables: Marketing and Advertising Tech

Marketing and Advertising M&A Declines

_______ Source: 451 Group; includes transactions with disclosed, estimated, undisclosed transaction values Top 3 acquisitions with disclosed transaction values

Average LTM Revenue Multiple 2013 2014 2015 6.1x 4.9x 1.9x

Top 3 Acquisitions by Quarter ($M) – Target / Acquirer

2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16

ExactTarget / Salesforce ($2,500)

DG (assets) / Extreme Reach

($485)

Responsys / Oracle

($1,607)

Valassis / Harland Clarke

($1,947)

Vocus / GTCR

($413)

Conversant / ADS

($2,216)

Datalogix / Oracle

($1,100)

eXelate / Nielsen ($195)

TellApart / Twitter ($532)

DT (assets) / Stroeer ($331)

Cons. Contact / Endurance Intl.

($1,100)

Tapad / Telenor ($360)

Hybris / SAP

($1,341)

Adap.tv / AOL

($465)

Dealer.com / DealerTrack

($987)

BlueKai / Oracle ($320)

Adconion / Amobee ($209)

LiveRail / Facebook

($382)

BrightRoll / Yahoo! ($640)

Chango / Rubicon ($100)

Domob / BlueFocus

($289)

Mil. Media / AOL

($248)

ShopperTrak / Tyco

($175)

Smartclip / RTL Group

($53)

Neolane / Adobe ($600)

Locu / GoDaddy

($70)

Aggregate / NeuStar ($119)

FreeWheel / Comcast ($320)

Adometry / Google ($150)

[x+1] / Rocket Fuel

($230)

Videoplaza / Ooyala ($80)

Yashi / Nexstar

($33)

Bronto / NetSuite ($200)

Unruly Media / News Corp

($90)

Undertone / Perion ($130)

Technorati / Synacor

($3)

31 34 34

51 53

41

53

42 40

55 53

38

$4,810

$1,167

$2,865 $3,049

$845

$3,305

$1,945

$389

$1,220

$820

$1,706

$438

0

10

20

30

40

50

60

0

1,000

2,000

3,000

4,000

5,000

6,000

2Q 2013 3Q 2013 4Q 2013 1Q 2014 2Q 2014 3Q 2014 4Q 2014 1Q 2015 2Q 2015 3Q 2015 4Q 2015 1Q 2016

# Deals $ in millions Deal Volume Deal Value ($MM)

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Top Acquirers in Marketing and Advertising Market

Buyer # Acquisitions Total Value ($M) Targets

Google 8 1,025.0 Admeld, Adometry, Channel Intelligence, Incentive Targeting, mDialog, Red Hot Labs, Wildfire, Zave Networks

Yahoo! 8 975.5 5to1.com, AdMovate, Brightroll, Flurry, Interclick, Luminate, Palaran, Ztelic

Adobe 7 1,178.0 Auditude, comScore (assets), Demdex, Efficient Frontier, Neolane, Search Discovery, Tumri

Oracle 6 4,408.7 BlueKai, Datalogix, Eloqua, Involver, Responsys, Vitrue

Facebook 5 382.0 LiveRail, Microsoft Corporation (Atlas Advertiser Suite Assets), Onavo, Pryte, Threadsy

Top Acquirers by Volume – Five or More Acquisitions, 2011 – Present

Buyer Total Value ($M) Targets

Oracle 4,408.7 BlueKai, Datalogix, Eloqua, Involver, Responsys, Vitrue

Salesforce 3,515.0 Buddy Media, ExactTarget, Radian6

Alliance Data Systems 2,300.0 Conversant

Harland Clarke 1,947.0 Valassis

SAP AG 1,381.0 Hybris, KXEN, SeeWhy

Adobe 1,178.0 Auditude, Demdex, Efficient Frontier, Neolane, Search Discovery, Tumri

Endurance International 1,100.0 Constant Contact

DealerTrack Holdings 1,048.5 ClickMotive, Dealer Dot Com

Google 1,025.0 Admeld, Adometry, Channel Intelligence, Incentive Targeting, mDialog, Red Hot Labs, Wildfire, Zave Networks

Yahoo! 975.5 5to1.com, AdMovate, Brightroll, Flurry, Interclick, Luminate, Palaran, Ztelic

DG 597.6 EyeWonder, MediaMind Technologies, Peer39, Republic Project

Twitter 532.6 AdGrok, RestEngine, TellApart

IBM 500.1 Now Factory, The Silverpop Systems, Tealeaf Technology, Inc.

Top Acquirers by Total Transaction Value – $450M or More, 2011 – Present

_______ Source: 451 Group

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On January 29, 2016

Marketing & Advertising M&A Case Study

Transaction Overview: • $360 million acquisition of Tapad by Telenor

- 95% stake on a debt-free, cash-free basis • Financial metrics:

- 2015 revenue reported at $57 million, growing 70% year over year compared to 2014, implying an approximate 6.3x LTM multiple as of 2015

- 2015 EBITDA loss of $12 million, with expected break-even in 2017 - 2016 revenues forecasted to increase to $90 million, implying a ~4.0x NTM

multiple Target Description: • Provides cross-screen, targeted advertising software, customer analytics and

advertising delivery software, and related digital marketing campaign management services for marketers and advertising professionals globally

• Tapad’s innovative device management solution, The Tapad Device GraphTM, assimilates billions of data points from different devices and platforms, and helps customers recognize, measure and monetize their audiences across all of their internet connected devices, while at the same time respecting data privacy

Transaction Commentary: • “With the acquisition of Tapad, Telenor Group is taking a position within the

rapidly growing market for advertising technology, and securing important competence within digital marketing and analytics. I believe significant value can be created from applying marketing technology to improve the digital capabilities of our core telecom business. This will improve our understanding of customer behavior, and supports building a platform for other business areas.” – Sigve Brekke, CEO, Telenor

_______ Source: 451 Group, acquirer press release

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ACQUIRED

_______ Source: PitchBook; includes transactions with disclosed, estimated, undisclosed transaction values Top 3 investments with disclosed investment values

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_______ Source: PitchBook; number of investments may include follow-on investments in same target

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Top Seed and Series A Investors in Marketing and Advertising

Investor Investments Targets

500 Startups 26 AdStage, BackType Boostable, Capseo, Central Mayoreo, Conekta, Crowdrally ,Iterable, LocBox, MarketVibe, PostRocket, Privy, Regresa Pronto, Samba Ads, ShareRoot, Spinnakr, Unbounce Marketing, Vid Network, Virool, Vungle

SV Angel 14 Booshaka, Boostable, Custora, Heap, Moat, Nomi, NowSpots, Pipewise, SocialFlow, TT Labs, Tubular Labs, Vungle

RRE Ventures 11 Bloglovin, BlueTrain Mobile, Deepomatic, ividence, Klaviyo, Pontiflex, Say Media, SinglePlatform, SocialFlow, Yieldbot

Y Combinator 11 AdGrok, BackType, Boostable, Custora, Heap, LocalOn, Orankl, Reebee, TT Labs, Virool

TechStars 11 AdYapper, Bizible, inRentive, HYP3R, MarketVibe, Mavrck, Mobintent, Simple Energy, SimpleRelevance, Splashscore

First Round Capital 10 Altruik, Elicit, Handshakez, Jirafe, Moat, Nomi, Say Media, SinglePlatform, Solve Media

Lerer Hippeau Ventures 8 Bloglovin, Bottlenose, Brandtale, Fuisz Media, GraphEffect, Moat, Tubular Labs

Greycroft Partners 7 Custora, Elicit, Media Armor, Molio, Nomi, TagMan

Betaworks 6 Bloglovin, Namo Media, SocialFlow, Teleportd

Atlas Venture 5 Bluetrain Mobile, InsightSquared, Privy, Unbounce Marketing

CommonAngels 5 InsightSquared, Linkable Networks, Yieldbot

Draper Associates 5 Autopilot, MomentFeed, Vungle

ff Venture Capital 5 Bottlenose, Elicit, Movable Inc, Parse.ly

Founder Collective 5 BackType, Custora, GraphEffect, Moat, ThriveHive

Top Investors by Volume, 2011 – Present


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Top Series D+ Investors in Marketing and Advertising

Investor Investments Targets

Norwest Venture Partners 8 Act-On Software, Komli Media, True[x] Media, Turn

Draper Fisher Jurvetson 7 4INFO, AdXpose, Flurry, Komli Media, PubMatic, SugarCRM, Tremor Video, Yodle

Accel Partners 6 AdRoll, Genius.com, OpenX Software, Power2sme, YuMe

Battery Ventures 6 BloomReach, BrightEdge Technologies, Lotame, Marketo, Sprinklr, Tealium

Focus Ventures 5 Delivery Agent, Marin Software, Turn

Institutional Venture Partners

5 AdRoll, Buddy Media, Marketo, xAd, Yext

Menlo Ventures 5 DataXu, Flurry, YuMe

SAP Ventures 5 Criteo, Marin Software, OpenX Software, Tremor Video

Crosslink Capital 4 Flurry, Marin Software

First Round Capital 4 33Across, AppNexus, Flurry

Intel Capital 4 BrightEdge Technologies, Delivery Agent, Sprinklr, YuMe

Panorama Capital 4 33Across, JiWire, Zoove

Scale Venture Partners 4 BrightRoll, Demandbase, HubSpot

Trident Capital 4 BrightRoll, JiWire, Turn

Top Investors by Volume, 2011 – Present


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On January 29th, 2016

Marketing and Advertising Investment Case Study

INVESTED IN

Transaction Overview:

• $56M of Series D venture funding from lead investors Bain Capital Ventures, Battery Ventures and Lightspeed Ventures. New Enterprise Associates and Salesforce Ventures also participated

• The investment values the company at $527M post-money

• BloomReach has raised $97M in funding to date

Target Description:

• Developer of a software that enables companies to increase their web traffic from organic or natural search results. The company enables content, products and services to pop up on the platforms consumers use every day

Transaction Commentary:

• BloomReach plans to use the investment to further strengthen its technology and scale its solutions globally for all digital businesses. It currently has more than 250 employees and plans to grow its personnel worldwide

• “BloomReach’s vision from the start is to make every site, tablet, and mobile experience more relevant for every consumer,” CEO Raj De Datta said. “We focused on delivering on our vision first for ecommerce, and now we are seeing success with our Compass applications outside of ecommerce”

• In addition, BloomReach has announced that Marcus Ryu, CEO and cofounder of Guidewire Software, has joined its board of directors

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_______ Source: PitchBook, VentureBeat

15+ Years of Marketing and Advertising Tech Sector Success

IPO

Lead Manager

IPO

Lead Manager

IPO

Lead Manager

HAS ACQUIRED

Fairness Opinion to the Buyer

IPO

Co-Manager

HAS BEEN ACQUIRED BY

Financial Advisor to

the Seller

_______ Certain transactions executed by Headwaters TMT bankers at prior firms



the Seller



the Seller



the Seller



the Seller



the Seller



the Seller


A DIVISION OF

Financial Advisor to the Seller



the Seller



the Seller

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Recent Awards and Nominations




A DIVISION OF


the Seller




A PORTFOLIO COMPANY OF


the Seller

2013 TMT DEAL OF THE YEAR <$100M

CONSUMER SERVICES

DEAL OF THE YEAR

CROSS BORDER DEAL OF THE YEAR


CORPORATE / STRATEGIC ACQUISITION OF THE

YEAR

2014 ONLINE AND MOBILE TECH DEAL

OF THE YEAR






7th ANNUAL

INTERNATIONAL M&A AWARDS

2015 WINNER

HAS ACQUIRED

Financial Advisor to the Buyer

Page | 18

Headwaters Technology, Media & Telecom (TMT)

team has won awards for

Online and Mobile Tech Deal of the Year

& Consumer Services Deal of the Year

and back-to-back M&A Advisor TMT Deal of the Year

awards

www.headwatersmb.com

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John Batdorf Managing Director

Head of Software & Internet

Investment Banking

Office: (415) 926-7454

Cell: (415) 847-8805

[email protected]

135 Main St

Suite 800

San Francisco, CA 94105

http://www.headwatersmb.com/

http://www.headwatersmb.com/

Disclosure: This newsletter is a periodic compilation of certain economic and corporate information, as well as completed and announced merger and acquisition activity. Information contained in this newsletter should not be construed as a recommendation to sell or buy any security. Any reference to or omission of any reference to any company in this newsletter should not be construed as a recommendation to buy, sell or take any other action with respect to any security of any such company. We are not soliciting any action with respect to any security or company based on this newsletter. The newsletter is published solely for the general information of clients and friends of Headwaters MB, LLC. It does not take into account the particular investment objectives, financial situation, or needs of individual recipients. Certain transactions, including those involving early stage companies, give rise to substantial risk and are not suitable for all investors.

This newsletter is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon as such. Prediction of future events is inherently subject to both known and unknown risks, and other factors that may cause actual results to vary materially. We are under no obligation to update the information contained in this newsletter. Opinions expressed are our present opinions only and are subject to change without notice. Additional information is available upon request. The companies mentioned in this newsletter may be clients of Headwaters MB, LLC. The decisions to include any company in this newsletter is unrelated in all respects to any service that Headwaters MB, LLC may provide to such company. This newsletter may not be copied or reproduced in any form, or redistributed without the prior written consent of Headwaters MB, LLC. The information contained herein should not be construed as legal advice.

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