Introduction

Bruce Milne

Welcome and thank you for joining us. This is Forecast 2015, our global tech M&A report. I’m Bruce Milne, CEO of the Corum Group, your conference sponsor.

We have a jam-packed agenda with over two dozen speakers, so let’s get right to it. Today we’re going to cover our predictions for the coming year. Then we’ll have a tech M&A events report. We have a record market with record valuations. How can you take advantage of that? Tune into one of our special reports or attend them locally. Then, Top Ten Tech Trends, the disruptive trends of 2015 that will shape your business that you need to know about. Then we’ll have a special research report on 29 sectors, deals and valuations. We’ll close with a luminary panel, led by Salesforce, SAP, Microsoft and Futurist Reese Jones. Finally, we’ll have some closing thoughts and your questions.

Let’s start with Timothy Goddard, our VP of marketing.

2015 Tech M&A Predictions

Tim Goddard

Thank you, Bruce. We really do have a great event planned for you today. To start, we’re going to look through some predictions. Every year we poll the staff and gather some ideas of what we think might happen in the coming year, so let’s go through those.

IT services firms shift significant resources to focus on the Internet of Things. You’ll hear more about that coming up.
On a related note, wearable fitness tech will become more integrated with healthcare overall, not just fitness as a recreation activity.
We will see Chinese web companies move into the US, slowly at first and then Alibaba will buy Yahoo and more things will happen.
Security breaches, the ones we’ve seen won’t slow down, and we’ll also see the first major breach in the Internet of Things.
We’ll see a major fashion designer or retailer make a big move into wearable technology.
Ad technology companies will continue to be in demand both out of their sector and even outside of media and technology.
Finally, we think Google will finally wake the white flag on Glass hardware, sell their assets to Lenovo as we’ve seen them do before, and then wait for acceptance of the tech, then jump back in with software.

We’ve looked at the year ahead, so now let’s talk a bit about the year behind us. We’re going to talk about some of the events we did in the last year, and I’m going to turn this over to Amanda Tallman, senior marketing coordinator at HQ to talk about our past events.

Corum Group Events: Year in Review

Amanda Tallman

2014 was a great year for M&A and it showed in the success of Corum’s educational events. We offer two live events, the Merge Briefing, a 90-minute conference providing an overview of the current tech M&A market, with up-to-date valuations and trends, and Selling Up, Selling Out, our half-day follow-up conference that goes in-depth into the process of selling a company from preparation through closing an integration.

Two of the largest events we held were in Ruston, Virginia and Austin, Texas. In addition to these and other major tech hubs like Silicon Valley and New York, we also held conferences in places you might not expect, like Nashville, St. Louis, and Salt Lake City. We also held a very successful event in Cleveland this morning.

Visit our website for upcoming conferences near you, and for listening today, you can register using promo code forecast2015 for complimentary registration.

Timothy Goddard

Thanks, Amanda. Now over to Tanya Froelich at our European office in Zurich.

Tanya Froelich

I’m Tanya Froelich, branch manager based out of our Zurich office. 2014 was a great year for us. We held over 30 conferences in Europe alone. Speaking at these events, with these industry experts, confirms our research that tech M&A activity is up throughout Europe. Notably, the UK and Ireland continue to lead. We held six events in London and Dublin last year, with our partners at Olswang, and expect to double that number this year.

Iberia was very active with lots of deals taking place, predominantly cross-border, and the tech players there are very enthusiastic about the expected growth in 2015.

We hosted a number of DOC road shows and consensus there is that an increase in deal value and Berlin continues to lead the growing tech scene.

In the Nordic region, Sweden was the most popular M&A target country in terms of both deal volume and value.

In conclusion, it’s been a really exciting year for us and we look forward to this continued activity in 2015.

We have a number of Euro conferences planned for this year, so please take a look at our website and we hope to see you at one of our upcoming live events.

Timothy Goddard

Thanks, Tanya. Now from Europe to the rest of the world where our VP of International Business Development has spent most of his time lately. Dougan?

Dougan Milne

It was a record year for Corum conferences internationally, with executive educational events in 28 countries, assisted by leading tech associations and industry-leading co-sponsors.

In Latin America we were heavily involved in Mexico City, Bogata, Rio, Santiago, and Sao Paolo, thanks to partners like KSA Partners, BD Guidance, and ProExport for their support.

Further east, we ran events in Tel Aviv, Istanbul, and Dubai, with great attendance by excellent technology firms.

Our biggest efforts were in Asia, where many of the largest tech M&A transactions are being done today. Major events in Singapore, Bangalore, Hong Kong, Beijing, Shanghai, and thanks again to our many partners, Fortune Capital, Hong Kong Science and Tech Parks, and Cheetah Fee Venture.

These events were not only heavily attended by sellers, but also the new generation of active international buyers, many of whom are unknown to western sellers.

For 2015, our executive educational events will be even more active, so please be sure to check our website for up-to-date information.

Timothy Goddard

Thank you, Dougan. Now, in addition to all these events, we’ve also participated in dozens of outside events, providing tech M&A tracks and content across the globe.

We continue to be a proud sponsor of the World Financial Symposiums, and led their “Growth and Exit Strategies” events in London, Silicon Valley and Seattle—another Seattle event is coming up February 26 and we’d love to have you there.

We also continued working with Casual Connect, leading their gaming M&A tracks in San Francisco, Amsterdam and Singapore. We also added GamesBeat, hosted by VentureBeat to our gaming roster.

Other events included the International Bar Association, angel groups, startup festivals, academic workshops and more. In Asia, we spoke at a number of conferences including Intech 50 and the NASSCOM Product Conclave in Bangalore, Explore Beijing and the Business of IP Asia forum just last month in Hong Kong.

To request a Corum speaker for an event, please drop us a line at info@corumgroup.com. We’ll be hosting even more of our Merge Briefing and “Selling Up, Selling Out” events this year, and we hope to see you at one of these gatherings soon.

Corum Top Ten Disruptive Technology Trends 2015

It’s going to be an exciting year, partly because we’re in the midst of an increasingly exciting time for technology, which is hitting inflection points that are fundamentally changing the way all of us do business and live our lives—and the deals getting done. To get a handle on the key trends driving tech deals, every year we put together a list of the Top Disruptive Tech Trends that we see making an impact when we run events, talk to the thousands of buyers we’re in regular contact with, and, importantly, when we close deals.

We break these trends into two groups: Connect, those trends that arise from the growing connections between people, networks and devices; and Create, those that focus on creating the tools, applications and business models made possible—and necessary—in this era of disruptive tech.

We’ll start with the Connect group, and with Russ Riggins here at HQ examining the trend of Majority Mobilization.

Top Tech Trend #1: Majority Mobilization

Russ Riggins

This year, 15 countries—including the US, UK, Canada, France and Germany—will have the majority of their citizens using smartphones, a trend with significant implications that are just beginning to be addressed. In the enterprise, the world has tipped—mobile isn’t just an additional feature, and even the term “mobile strategy” is outdated. Majority mobilization is having a profound impact on the Company/Customer relationship.

Organizations have been moving process activities closer to the customer, with obvious benefits both for the organization, in lower costs and the customer, empowerment. The convergence of mobile devices and the cloud environment are accelerating this trend.

Uber is transforming the way we travel, accelerating the overall taxi ride experience, from locating a taxi close to the customer and completing the payment process. Another great example is the mHealth, or mobile health solutions, from wearables like activity trackers that can interface with wellness programs, to mobile devices that can track your weight, take our blood pressure and upload the information to the medical records maintained by your primary care physician. Every sector is being impacted by the new mobile majority.

Timothy Goddard

Thanks, Russ. Now, over to Dougan again, who is going to discuss Online Exchanges.

Top Tech Trend #2: Online Exchanges

Dougan Milne

We have Sean Fanning and Napster to thank for this category. In 1999 this became a significant wake-up call to the world on how the basic equation of supply and demand could be serviced through the internet. Fast-forward 15 years and the concept of the online exchange and disintermediation have touched nearly every industry.

So what do we see as potentially disruptive in 2015? How about personal medical service. With the entrance of new wearable technologies and their health connected partners, the doctors are now being targeted as middle men. How much closer to our own health can we get, and who will own that info?

Now in banking we’ve seen TransferWise and Zoom catching a lot of headlines lately, both good and bad, but these disruptive services have allowed consumers, retailers, and others to circumvent the high cost of traditional banking fees for transfers and currency exchange.

Lastly, we do keep an eye on online gambling. Continually torn down by regulators and the rebuilt by entrepreneurs and very high demand. Land casinos still claim online gaming to be a compliment rather than a competitor, but only time will tell.

Timothy Goddard

Thanks, Dougan. Now back to headquarters and Daniel Bernstein discussing Omnichannel Marketing.

Top Tech Trend #3: Omni-channel Marketing

Daniel Bernstein

Omnichannel marketing has reached new heights as a continuum across brands, locations and experiences. A British Airways billboard in Piccadilly Circus featuring a boy pointing to a plane launching overhead identifying flights by destination and flight number would previously be unthinkable without near-instantaneous access to big data across multiple mediums.

We now carry a GPS in our pocket which is tied into our social graph and buying history, allowing for targeted, personalized messages to be sent to us with the added dimension of knowing where we are in the physical world. Companies that facilitate this integration and enable personalized messaging along this continuum of media will continue to benefit.

Timothy Goddard

Thanks, Dan. Now across to Stockholm with Mark Johnson on Digital Currency Flow.

Top Tech Trend #4: Digital Currency Flow

Mark Johnson

This is going to be the year for accelerating payments into the digital realm. Authentication innovations, social network shopping, NFC, and changes in consumer behavior and awareness are driving us to digital.

Today only 6% of retail is via ecommerce, and only 1% of payments are made via mobile. These numbers will dramatically climb, and we believe this year will be the tipping point.

Shoppers want and need security, but they don’t want to give up any convenience. The technology is there and the agreements of major banks and card issuers are in place to enable a nearly seamless mobile payment experience. We’re seeing this already with Uber and other similar services.

Social networking sites are getting into the payment space. We saw Facebook and Twitter incorporate buy buttons last year. In the US, only 2% of retailers offered NFC capability, which will scale in 2015, driven by ApplePay and Google Wallet in the US and in Europe.

The technology finally exists for more secure and reliable digital payments. Retailers and consumers are integrating digital into their payment experience, which will drive increasing M&A and innovation in the payment sector this year.

Timothy Goddard

Thank you, Mark. Our final Connect space is similar to one that we had for last year’s set, but we’re a focusing a little more on the software of the Internet of Things, and for that we go to Houston and Jeff Brown.

Top Tech Trend #5: Internet of Things Software

Jeff Brown

Why would buyers like Google, Cisco, Intel and Qualcomm spend $15B to acquire over 60 IoT-related companies last year? This doubled the number of IoT acquisitions and showed a 40-fold increase in spending.

This is because the Internet of Things is changing the world and driving tremendous innovation, differentiation and value. The majority the financial value to be mined fro the IoT space is not in the device, but in how they are connected. That value will flow to IoT software innovators.

Last year, Apple released HealthKit and HomeKit developer tools in iOS8 and GE now offers Predix for the Industrial Internet, and Ford has OpenXC for smart mobility. At the same time, PTC dev platform ThingWorx, then Axeda for its machine connectivity software. Google acquired Nest and Dropcam as home automation platforms. Other bellwether IoT software deals included Tail-f going to Cisco, SmartThings to Samsung and Cobra Automotive to Vodafone.

Looking ahead, Cisco reports that only 1% of potentially connected devices are actually connected. As the other 99% come online, the opportunities for IoT software are remarkable. If the consumer electronics show last week is any indication, the activity is heating up very rapidly.

Timothy Goddard

Thank you, Jeff.

Now we’re going to go to the Create section, with a close cousin and integral part of the Internet of Things, Enmeshed Systems, with John Simpson.

Top Tech Trend #6: Enmeshed Systems

John Simpson

Enmeshed System technology is closely following Moore’s Law, with millions of ever-smarter lines of code buried in smaller and faster hardware every 18 months. We’re already blasé about our computer-laden cars and gesture-driven TVs, and factory floor controls for food processing, water treatment, and car manufacturing are routinely embedded in microchips.

Now comes intelligent and interconnected home heating, lighting and security devices, all controlled by our smartphones. So what’s next? Likely we’re going to move to supercomputer chips like the NVIDIA Tegra X announced at last week’s CES show. This is a truly exploding area in our industry.

Timothy Goddard

Thank you, John.

Now from microchips to more business models, as Rob Schram discusses Digital Force Multipliers.

Top Tech Trend #7: Digital Force Multipliers

Rob Schram

Digital Force Multipliers enable traditional firms to build value by using their own technology to directly address customer needs. Building these powerful platforms in-house—leveraging advances such as the cloud, new dev tools, and readily available commercial and open-source components—their market force is multiplied, and value can be, too.

Naturally, these companies draw interest from buyers seeking growth, and add three key benefits to the value proposition: Increased revenue, an innovative technology stack, and an employee base accustomed to using technology to drive results.

Examples include Redfin, ABC Legal, and our client Campus Special, who began providing traditional hard copy coupon books on college campuses. As technology and customer behaviors changed, they changed with them, developing mobile apps, online food ordering and payment processing. This caught the eye of Chegg, recently public, seeking to expand market share and leverage its own digital force multipliers to drive dramatic growth.

Timothy Goddard

Thanks, Rob. Now to one of our two completely new sections that we’ve added this year. We’re excited about this one. Here’s Ward Carter at HQ discussing positioning intelligence.

Top Tech Trend #8: Positioning Intelligence

Ward Carter

Yesterday’s machines struggled to sense and know the world; now they have the tools and data for a new level of precision and understanding. This trend of Positioning Intelligence is creating new, disruptive impacts, impelled by the needs of a data-driven and dominantly mobile technology age. Location has become increasingly important for consumers and marketers in delivering relevant content and services. Whether it be promotional messages from a nearby retailer, 3D directions to a destination, hailing the nearest taxi, monitoring moisture in a cornfield via drone, tracking vehicle diagnostics, or dynamically microtargeting messages to individual behaviors, we are witnessing a dramatic refinement in attainable use cases for location and proximity-technology. We see this trend accelerating as the Internet of Things coalesces and its new applications break through, impacting nearly every application sector and compelling M&A.

Timothy Goddard

Thank you, Ward. Now, Jim Perkins to discuss our other new trend, the rise of Sports and Gaming.

Top Tech Trend #9: Sports and Gaming

Jim Perkins

Technology has taken Sports and Gaming to a critical point of cultural importance, with new gear, viewing devices, networked venues, and instant measurement, stats, context and commentary. These two entertainment avenues are converging. Video games are becoming a spectator sport, driving Amazon’s billion-dollar Twitch deal; while sports are becoming more interactive, for instance via the growing multi-billion dollar industry of fantasy sports.

This disruption drives M&A: Gaming deals hit an all-time high in 2014, almost doubling to $10B in transactions, with megadeals like Minecraft to Microsoft and Oculus to Facebook. Deals are catching up in sports, witness the rollup of Stats LLC and Bloomberg Sports by Vista Equity. Gambling is driving value in both areas, as people demand participation, business models mature and jurisdictions loosen regulations—the Churchill Downs acquisition of Big Fish Games for nearly $1B came together at the crossroads of sports, gaming and gambling; expect more collisions there as this disruptive trend drives deals.

Timothy Goddard

Thank you, Jim. Now, finally, the implications of all these, with Jon Scott and Data Security.

Top Tech Trend #10: Data Security

Jon Scott

All of Corum’s Top Ten Tech Trends lead to more and freer flowing data, but that creates huge risks for breaches of that data. While analysts say 75% of enterprises’ IT security budgets are expected to be allocated to rapid detection of threats, in 2014 we continued to witness high profile cyber security attacks against companies like Target and JP Morgan, including the recent damaging attacks on Sony Pictures servers releasing 100 terabytes of internal files and movies.

This is creating huge opportunities in M&A for emerging and mature data security companies. Many of these deals are focused on aggregating threat data and analyzing real-time network traffic to respond to attacks in process. Two important deals this past year were the acquisition of Mandiant by FireEye for $1 billion and the acquisition of SafeNet by Gemalto for $890 million. And as the Internet of Things and the other trends open up yet new channels for data to flow through, information security is only increasing in importance.

Timothy Goddard

Thank you, Jon.

Tech M&A Research Report: J2Global Surprises a as Top Buyer for 2014

Now, let’s go from these trends to the deals those trends are driving, withy our 2015 Tech M&A Research report, led by Vice President and Director of Research Elon Gasper, joined by Alina Soltys, Amber Stoner, Tyler Vickers and Ivan Snook, and joining us from Europe, Nina Seghatoleslami and Artem Mamaiev. Elon?

Elon Gasper

Thanks, Tim. We’ll begin with a look back at the public markets, which set many new records as business profits and loose monetary policies around the world combined in an unprecedented, nearly global, liquidity event. The tech sector added overlapping cycles of innovation from disruptive trends like those we just mentioned to rack up double-digit gains year over year.

Pressured to maintain and build on these gains, big companies tapped that ready cash from their balance sheets and new borrowing, to chase growth through Tech M&A, led by top buyer Google with 37 acquisitions on our annual leaderboard, returning it to the position it held 3 of the last 4 years by breaking its high score of 2011, as we predicted back in July, continuing an impressive 11 year record of growth through acquisition, a strategy it has taken to new heights.

The surprising runner-up among the acquirers wasn’t last year’s top buyer Yahoo, but WPP, as it and Publicis led a wave of digital ad agency consolidation.

Just behind Yahoo, J2 Global’s fourth place showing was another surprise, as it rolled up more companies in media, backup and email security; and a 3D printer company broke onto the leaderboard for the first time, as 3D Systems edged in with its share of the dozens of other 3D deals, including Corum client Orthoview, bought by Materialise, confirming the Advanced Manufacturing trend we called out in last year’s list of disruptors.

Back to Google: can you unpack that shopping spree for us, Alina?

Alina Soltys

Sure. Google started 2014 with its daring consumer product purchase of Nest for $3.6B and London-based DeepMind known for their AI, then continued to invest through them and YouTube as subsidiaries. For instance, Dropcam was added as a complement to Nest, focusing on home security and monitoring for about half a billion. Among the rest, there were a number complementing the DeepMind purchase with artificial learning apps Jetpaс and Tinker Square’s Emu, a couple online advertising companies, Adometry for $150M and startup mDialog, and finally, Skybox Imaging, for $500M to augment Google Maps and Google Earth with high-quality real-time photos and videos.

Elon Gasper

Tracking last year’s change in the leading buyers’ landscape, the most changed was J2Global, a business cloud services vendor with a digital media subsidiary, gathering companies globally and backloading the year with a run of December closings just announced last week.

Close behind J2 came Dropbox, which also more than doubled its tech M&A purchases last year, including facial and object recognition firm KBVT to help organize photos stored in Dropbox accounts.

A number of perennial top buyers held on, while Yahoo and Apple slipped down the ranks. Buyers that dropped all the way off the chart included Accenture, Autodesk, Intel, IBM and Cisco.

Turning to the PEs, Insight tops the leaderboard with a swarm of small deals it added to existing portfolio companies, showing that bolt-ons were a core theme last year as IPOs and strategics bidding for deal flow drew private equity dollars downmarket. We’ll have more commentary next month in part two of this report, our yearly Private Equity webinar.

Alina Soltys

Summarizing 2014 with our Corum Index, we reached new highs in M&A volume gaining more than 18% and which drove a nice increase to our megadeals, now up to 46! We’ll take a deeper look at these megadeals but to wrap up the index, VC exits were down slightly over the year, while cross-border transactions continued to grow.

Back to the megadeals, let’s take a look at one from each sector:

The Internet market had the largest deal, the successful $22B acquisition of WhatsApp by Facebook.

Elon Gasper

Among the half-dozen IT Services deals we highlight French media giant Publicis paying $3.7B for Boston-based Sapient, a prominent omnichannel commerce player.

Alina Soltys

Moving onto the Horizontal space, SAP spent a whopping $8.3B on the acquisition of Concur, an employee mobility solutions provider. We’ll hear from Dr. Karl Pop from SAP in our panel in just a few minutes.

Elon Gasper

In the Infrastructure market Zebra took advantage of low rates to borrow $3B and double its size through M&A, picking up Motorola’s asset tracking tech in line with the IoT and Positioning Intelligence trends we mentioned.

Alina Soltys

There were a number of PE-backed buyouts within the Vertical sector. A consortium led by Blackstone and Goldman Sachs bought out IPREO. IPREO provides financial information on markets, trading and an extensive database of private investors which Goldman will certainly use to sell its financial products.

Elon Gasper

Finally, in the Consumer sector, the headliner atop a stack of massive casino gaming deals was Beats, the streaming music, headphones and audio software company bought by Apple for $3B.

Among regional geographies, North America continues to be the major buyer while Latin America, Mideast and Asia show growth of sellers. Within North America more detailed patterns can be resolved. Tyler, can you take us through some?

Tyler Vickers

Sure. North America was a hub of M&A activity in 2014, with 3 out of 4 deals having at least one stakeholder in the region, representing a disclosed total of over $330B. In the U.S., the west saw the most activity, led by California, which had more deals than the combined total of any other region.

The state is also home to Chegg, which, with three transactions this year, is becoming a full service, one stop shop for college students. Right after their IPO, they acquired Corum Client Campus Special, a student deal platform for $17M. Following that, they purchased InstaEDU for their online tudoring network, then rounded out with Internships.com for $30M. All these transactions are diversifying their prior focus of textbook rentals into a platform serving college students.

Overseas interest from North America was, not surprisingly, directed to Western Europe, home to nearly two-thirds of all outbound targets, while the remaining third was mostly divided between Asia and Latin America.

You can tell us about a couple transactions there, Nina?

Nina Seghatoleslami

Yes, on that note, exactly one year ago, Equifax announced the acquisition of Corum’s Mexico City-based client, Inffinix.

In Brazil, TOTUS, Latin America’s largest software company and most active acquirer, bought Virtual Age, a SaaS supply chain platform for the textile and clothing industries.

Western Europe continues to show strong M&A performance with the UK, Germany, and the Nordics maintaining leadership. The biggest Nordic deal was payments firm Nets, bought by PEs Advent and Bain for $3.1B. Days later, Nets acquired Corum’s Finnish client Paytrail, the ecommerce payment service provider.

What about Eastern Europe, Artem?

Artem Mamaiev

Eastern Europe tripled tech M&A in the latter half of 2014, with financial tech companies also on the rise. Hungary-based mobile banking company IND was purchased by Vista-owned Misys, adding digital retail banking solutions to its portfolio.

In Asia, fast-growing companies emerge daily, while recently IPOed companies turn up the heat with M&A, like Alibaba, which spent 1.6B to buy Chinese digital mapping company AutoNavi at a strong 7.5x revenue multiple. Further south, Australian job marketplace Seek paid nearly half a billion to purchase its Malaysian competitor JobStreet, to penetrate deeper into Southeast Asia.

Finally, California’s ServiceNow spent $100M to add Israeli startup Neebula, which clearly had hit the strategic sweet spot with its ServiceWatch SaaS for enterprise management automation.

Elon Gasper

Drilling down now into our six markets, we’ll examine 29 sectors, a net increase of 3 new ones emerging as we revise our reporting with a significant annual reorganization reflecting the many structural market changes we confirmed in 2014. A major version release as the decade heads across its halfway mark!

To start, bring us up to date on the Horizontal Applications story, Amber.

Horizontal Software Valuation Metrics

Amber Stoner

With the changing of our subsectors and SaaS companies permeating multiple sectors, including Vertical and Infrastructure, Horizontal now finds itself in the middle of the pack. The sector saw EBITDA multiples fluctuate throughout the year, while sales multiples remained fairly steady, with a slight uptick to end Q4.

Sales multiples rose in the HR and SCM subsectors while CRM and Marketing and AdTech saw a jump in EBITDA multiples, although both sales and EBITDA multiples are down overall from this time last year. The dip in multiples hasn’t stopped acquisition activity in the space however, and, in fact, analytics was a hot trend in 2014 across sectors.

Announced just last month, Canadian giant OpenText is branching out from its content management roots spending $330M, a 2.5x sales multiple, to get BI analytics firm Actuate, enabling OpenText solutions with embedded analytics.

And BI giant TIBCO, prior to being taken private by Vista Equity, bought BI reporting and analytics SaaS provider, Jaspersoft, for $185M, a 6.2x sales multiple, bringing reporting capabilities to Spotfire’s visual analytics.

HR software companies were buying analytics as well. We’ve talked about a number of those deals over the course of the year, including Workday’s acquisition of Identified in February for $26M. HR analytics deals continued in Q4 with Cornerstone OnDemand paying $43M for Evolv in October.

And in December, from outside the horizontal sector entirely, telecom services company CenturyLink grabbed Cognilytics, a provider of BI predictive analytics and big data visualization SaaS.

With companies needing a way to make better use of their data, we expect further consolidation in the BI segment in 2015, particularly as it relates to analytics and big data.

Ivan, what activity did we see in the Internet sector?

Internet Software Valuation Metrics

Ivan Snook

The high valuations in our revised Internet sector reflect the outsized value placed by the market on successful emerging business models. Sales multiples peaked in February and by year’s end returned to a more rational 5x sales, while values from EBITDA remained steady.

Among the four new sectors, we see diverse valuations for different business models. Social networks lead significantly in sales multiple with both social and ecommerce out ahead in EBITDA.

Within those social networks knowledge proved powerful and profitable as major social media sites friended companies specializing in social network analytics. LinkedIn purchased Bizo for $175 million dollars to enhance targeted advertising and also Bright Media for $120M to boost its job matching service.

Twitter’s trending, with its 12 acquisitions over the year, including the $134 million dollar acquisition of Guh-nip, a Colorado-based startup that resells social media data. Twitter also entered the ecommerce sector with its purchase of Cardspring, who turns tweets into receipts by using hashtags to process mobile purchases, an exciting technology on our Top 10 Trend, Digital Currency Flow.

In our new travel and leisure sector, there’s a smorgasbord of online food delivery websites consuming their way to year-over-year growth of 500% and 19 total transactions, eleven of which from Berlin-based companies Delivery Hero and FoodPanda.

London-based takeout service JUST EAT gobbled up EatCity for its point of sale software that enables restaurants to serve up delivery ordering right onto their own websites. JUST EAT now also delivers to France and Canada after its acquisitions of Eat Online in Paris, and Delivery Town in Edmonton.

And for hungry travelers not interested in delivery, travel website giants are adding online restaurant reservations to the menu. Priceline bought OpenTable for a whopping two-point-six billion dollars, and TripAdvisor continued its three-year M&A feeding frenzy, including Paris-based La Fourchette and Amsterdam’s IENS.

TripAdvisor customers can now also connect with local experts via Tripbod, get cozy with VacationHomeRentals.com, and see the sights with Viator.

Amber, Infrastructure; how’d it do?

Infrastructure Software Valuation Metrics

Amber Stoner

Overall, the Infrastructure market has seen increases in both sales and EBITDA multiples over the last year. Valuations were up among almost all of the 6 Infrastructure subsectors.

We continued to see consolidation in the Network Management and Security spaces, both of which saw increases in EBITDA multiples. But 2014 also brought quite a bit of acquisition activity in the endpoint subsector to go along with an increase in sales multiples from a year ago.

The network management space was extremely active throughout 2014. Even the private equity firms got in on the action with Thoma Bravo spending a bundle in the space in two out of their seven 2014 deals, picking up Riverbed for $3.6B and Compuware for $2.5B. We’ll go into those deals in more detail next month when we spotlight private equity.

In our new Endpoint subsector, VMware acquired mobile device management company, AirWatch, for $1.5B, allowing it to better compete with Citrix as both companies rolled out new mobile device management tools early in 2013 and made acquisitions in 2014 to enhance their MDM portfolios, moving from managing desktops and servers to being able to manage and secure all endpoints.

One of the major network management players, Cisco, bought Tail-f, a provider of multi-vendor network service orchestration solutions for traditional and virtualized networks for $175M, accelerating Cisco’s cloud strategy.

Cisco also expanded its reach in infrastructure by paying $149M to get Metacloud, a three year old company that helps organizations build OpenStack clouds, and, most recently, grabbed enterprise security consultancy Neohapsis strengthening its risk management technology.

Elsewhere in the security space, after its IPO in 2012 and spending $55M in 2013, Proofpoint continued acquiring in 2014, landing security incident response and remediation software provider NetCitadel for $24M in May and following that deal with a $35M purchase of social media security and compliance SaaS provider Nexgate in October.

Elon, how are the Verticals?

Vertical Software Valuation Metrics

Elon Gasper

Our diverse vertical markets held steady at high levels; transition to SaaS continued to be the principal driver of value, as buyers’ interest in other models fades. With variation among subsectors ranging in value from the slow-moving government field, to a consolidating but still dynamic healthcare segment, to a couple hot new sectors: Automotive and Real Estate. Both held high EBITDA ratios, but the Real Estate, with its expanding networks of property sites, clearly tops the chart with 18% higher EV to sales. Among its deals: here in Seattle, search site Zillow took Trulia for $3.5B; in a second megadeal News Corporation grabbed Move, operator of Realtor.com, for nearly a billion.

Nina Seghatoleslami

Here in Spain, Trovit, the country’s leading website for real estate and other classified ads, was acquired by the Japanese real estate information firm Next for $100M at 4.5x revenue.

In the Automotive sector, Britain’s CAP Automotive was bought for over $460M by Solera, a risk management software provider for the automotive industry, which also bought Czech vehicle valuation provider IBS.

In related deals, Yandex added Auto.ru for $175M, while in a $1.8B megadeal Cars.com was bought by Gannett.

Finally, in the healthcare sector, UK-based Servelec paid $37M for Corelogic, a social care case management software business. Look for more in our Corum Research coverage in a special report on the healthcare IT vertical next month, in a Market Spotlight webcast.

Tyler, what’s been happening in IT Services?

IT Services Software Valuation Metrics

Tyler Vickers

The number of IT Services deals in 2014 grew by 10% over last year, while values in sales multiples held on to gains made early in the year and EBITDA multiples ended on a high note.

In the developed markets, the biggest IT Services firms, having undergone significant domestic consolidation, and are now looking for growth internationally. French firm Atos acquired Xerox’s IT services arm for just over a billion, making them the largest European-based IT service provider and tripling their presence in the US. The financial services giant KPMG bought German provider of managed securities services p3 Consulting & Software, building on their strong position in the world's fourth largest economy and leveraging this targeted service to protect their clients in the non-tech sector.

IT security services and information security VARs were particularly popular, as highly publicized breaches in cybersecurity underscored its growing importance in the private and public sector. After being bought by PE Blackstone Group earlier in the year for $225 million, the network IT security company Accuvant announced its own cybersecurity purchase with the acquisition of FishNet Consulting, an information security solutions provider, combining two of the largest security companies.

Ivan Snook

In emerging markets, companies are maturing and growth is crucial. In Chile IT services firm Sonda paid 170 million for Brazilian provider CTIS, expanding its reach into Latin American countries with high growth prospects.

In India, cloud development services and consulting firm Aditi Technologies was acquired by Symphony Teleca, becoming its fifth division, focused on what Symphony calls “Systems of Engagement” applying cloud, mobility, and analytics.

That only leaves the Consumer sector, Alina?

Consumer Software Valuation Metrics

Alina Soltys

We have had a choppy monthly performance in 2014, especially with EBITDA swinging between 7-12x as a few newly public companies like GoPro were added part way through the year.

The consumer sector has brought education and entertainment into its folds along with gaming.

The gaming sector has continued to accelerate its acquisitive streak from last year’s record pace. Our gaming research team put together this chart reviewing half years going back to 2009 tracking deal flow for the gaming ecosystem. This year, we saw $33B spent on 222 transactions.

All of the large tech companies, Google, Yahoo, Amazon, Microsoft, are participating. Microsoft made the mega deal list with its $2.5B transaction of Minecraft maker Mojang. Actually, a couple months before the transaction, Rolling Stone magazine had asked for our opinion on the private company’s value; at the time, $2B was my estimate.

Another couple of billion dollar deals hit the casino gaming space with the largest transaction going to Pokerstars at $4.9B. Amaya almost doubled its size with this transaction and it became the largest online gaming company.

And lastly, Private Equity jumped in with almost a $1B buyout of online gambling and sports betting provider Sky Bet out of the UK, one of the few countries that have legalized real-money oinine gaming.

Moving on to Education, besides the Chegg deals that Tyler mentioned, LeapFrog acquired one of their partners, KidZui a kid-friendly web browser that supports the LeapSearch Browser on their tablets. There is a lot at stake for Leapfrog with this generation of tech savvy tikes totting iPads around.

Swinging over to entertainment, Alibaba invested $1.22B, gaining almost a 24% stake in Youku-Tudou, the chinese Youtube. Online video is one of the few sectors that Alibaba had not yet tapped in its acquisition spree.

Xiaomi, the 3rd largest mobile phone manufacturer also took a stake, potentially working a new channel to distribute internet TV straight through their devices.

Elon Gasper

And that’s part one of our look back at the 2014 tech M&A. We see 2015 bringing continued high valuations and steady demand powered by profits, tech trends, strong balance sheets and global liquidity.

Back next month with part two, the PE focus, plus our January 2015 update. Back to you, Tim.

Timothy Goddard

Thanks, Elon.

2015 Tech Luminary Panel

I’m now very excited to bring together our tech leader panel that we present every year. We have a few familiar folks and a couple of new folks joining us as well. Each has a brief introductory statement and then we’ll go to some Q&A.

Let’s jump right in and start with Peter Coffee. Peter is the VP of strategic research at Salesforce, and we’re happy to have him back. Peter?

Peter Coffee

Thanks for having me. I always appreciate a chance to look at what I said the year before and ask myself, “so what?” I’m not in the habit of being wrong, but even when I’m right, there comes the question of “and therefore?” This year is certainly an example of that because last year on this occasion I talked about the "tipping point" where the mobile device had become the primary device instead of the accessory to the desktop; even then, it was clear that this would change the fundamental nature of service and support, from damage control to proactive engagement and from answering customer-reported complaints to early response after a connected product's diagnostic of pre-failure behavior.

Recent events invite me to double down on all of that, for example with Samsung's CEO at the Consumer Electronics Show just said that all of Samsung's products would be connected products within five years. Someone said in response that even five years is a long time, but I pointed out that 100% of anything in five years is lightning quick in markets like home appliances, where turnover cycles in customers' homes are probably twice that long. Even that, however, is just the redistribution of energy that's already in play. I'm reminded of William Gibson's comment that "the future is already here, it's just quite unevenly distributed," and the future of connected products is absolutely already here.

What's still "the future" is the idea of connected environments, where you don't have to wear something or log into something or download an app for something to gain value from its connection. When you get into any car made in the last few years, Bluetooth discovers whatever devices you're carrying and offers some fairly rudimentary help in using them within the driving environment, but we're clearly now seeing automakers redefine the car as largely the shell within which your brought-in devices and your beamed-in services have value added to them. I'm now hearing people talk the same way about people's homes and other dwelling places, as containers for the delivery of services more than they are structures sitting on pieces of real estate.

This means that we're going to see an explosion of opportunities to know, with people's permission of course, what they're wanting to get done and to predict what resources they'll want and need. Massive real-time analytics, machine learning, and new business models based on the value of services rather than the cost of goods sold are going to be truly exciting to put together in immensely profitable ways.

Timothy Goddard

Thank you, Peter.

Now, across to Europe. Dr. Karl Popp is the senior director of corporate development at SAP and he’s going to share a little bit of their thinking from Germany.

Karl Popp

Hello, everybody and thank you for having me. I would like to talk quickly about SAP and where we are related to Corum’s Top Ten Disruptive Tech Trends. SAP as a company has a clear strategy. We want to make the world run better and improve people’s lives. We want to be the cloud company powered by Hana, our world-class in-memory application platform. But how does that relate to the tech trends?

Let’s have a look at a few of them and see how acquisitions have helped SAP to speed up our success in these different areas.

We’re very active in IOT. We have mobile synchronization offering from Sybase. We also have an IOT addition of SAP Hana in an IOT connector that runs on edge gateways, so we’re very active there.

We also agree that mobilization is still a very strong trend, and with the acquisition of Sybase we are very well positioned there and moving forward and growing strongly.

Online exchanges we relate more to a different term, which is the business network, where SAP basically pumps revenues of members of the business network. These revenues amount to 75% more than the combined revenue of Amazon, ebay and Alibaba. The advantage is that the whole network of companies and their relationships are there and basically everyone profits from it.

One of the topics mentioned is real-time ad bidding, this is something we leveraged through the acquisition of CY, a company that provides re-targeting and re-marketing, which leads perfectly to the next topic, which is omnichannel marketing, where we acquired Hybris and that’s actually a very strong move, a successful acquisition where we provide perfect customer experiences no matter what the channel is. That’s a very important and successful area.

The last area I’d like to mention is sports and gaming. SAP has done very bold moves and actually that’s one of the new industries that we focus on, sports. We added Ticket Vet, an online ticket sales company to our portfolio, and this was the last functionality we were missing to be successful in the sports industry, and you’ve seen our appearances and sponsorings all around the major sports leagues, starting with the soccer World Cup, but we’re also into NBA, NHL, NFL, fantasy football, so that acquisition has helped us a lot.

So that’s the key things that I’d like to mention, now back to you and thanks very much.

Timothy Goddard

Thank you, it’s great to have that kind of insight into the strategies on the buy side, and now some of these things you wouldn’t expect, like sports and gaming, I wouldn’t have put that together with SAP before, that’s very interesting. Thank you.

Now from SAP to another major buyer, Microsoft. Mukund Mohan recently took the helm at MS Ventures, just down the road from us, and we’ll turn it over to him.

Mukund Mohan

Hi, this is Mukund Mohan. I run Microsoft Ventures here in the Seattle area. I wanted to talk about the three most important trends that we see this year that we’re keen to be able to invest in.

The first trend is around software-enabled services. Most people primarily understand that software (XXX 49:55 eating? Leading?) the world is a key phrase that a lot of people believe. We have found that even though software is (XXX) the world, business models that are enabled with software and not software oriented in the sense that they are not a SaaS business model, charging a subscription or ongoing fee for software, but instead a consumer-related service that allows you to be able, as an end user, subscribe to a solution as opposed to buy a piece of software or rent it. A primary example would be Uber for their business model they focus on trying to get end consumers to use the software as opposed to selling it or providing it with a subscription.

The second thing that we are keen on investing in as a tech trend for us is anything associated with enterprise related drones. For us, drone technology overall has been interesting in the consumer side of things for personal applications, but in agriculture, security and reconnaissance you see a lot of examples of where drone tech could be used, and we’re keen to invest in that area as well.

Finally, in software specific business models, we’re very keen to understand how container based models associated with cloud infrastructure can help make the next wave of cloud infrastructure applications be more secure and more private, and also how to scale more effectively.

Those are the three most important trends we see.

Timothy Goddard

Thank you. Now, finally, to Reese Jones. We’re always happy to have him here. He’s a futurist, an entrepreneur, and the founder of Singularity University. He always has some excellent insights for us. Reese?

Reese Jones

Thanks for having me back!

The four trends I want to touch on today are change, incumbent destruction, dematerialization and data biology. Exponential change continues apace with more or less doubling capability each year with counterintuitive impact on how problems are solved in the accelerating speed of change in how problems can be solved in more powerful and cost-effective ways.

The Internet of Things becoming more mobile with more sensors, location awareness, context awareness, and a deep data history of what has happened before allows context-appropriate response in the moment and the ability to anticipate what is going to be an appropriate response in the future becoming much more capable at an accelerating pace.

This has the impact of disrupting incumbents who typically solve problems with a technical approach that is rapidly becoming obsolete and newer ways of solving the problem are becoming exponentially better.

This trend is global with about 3 billion new people coming onto the internet over the next year or two and the places that they are, the way the energy is generated for them to attach, the language they use, their mobility, connectivity, are all improving at accelerating paces, which effects not just corporations, but governments, regulation, and even the way that we interact with our homes, work and friends becoming more dematerialized with things becoming virtual in the sense that they are no longer things, they are information. A flashlight is no longer a thing, it’s an application. Things become apps become services that become context available, which changes the way entertainment, social, work, transportation, and even reality function.

I’ll close with data biology, where a leading indicator is, say, Google Ventures has now shifted a third of its new investments from data sciences into life sciences. Partly technology has become more mobile with more sensors and smarter, is becoming more like living things, while living things, if you look at them from a data science point of view, the genomics and medicine, and even the way food is designed and produced, it’s becoming more like data technology, and these trends are affecting the way investment strategies should work and the way incumbents need to bring on new technologies and new markets, generally by acquisition.

Timothy Goddard

Thank you, Reese.

2015 Tech Luminary Panel: Q&A

Now we’re going to go to some Q&A. Again, as long as everyone is able to stay with us, we’ll keep going a bit past the hour.

I want to start with the first question, for Peter Coffee. Two of our new vertical sectors on the revised Corum Index are real estate and automotive. These are high to value purchases, there is a lot of money available for the resources and tech. We’re seeing transportation, as Makund referenced, with Uber and Lyft, they’re coming up the curve quickly there. What do you think the next bit vertical disruption that no one sees coming is, Peter?

Peter Coffee

The challenge is to get beyond the point of creating a taller tree to get to the moon, to get beyond thinking that the things that exist now are going to become better, faster, cheaper, and really rethink what is going to be happening almost at right angles to the verticals that exist now. Something Reese touched on, at what point do you stop thinking about incremental improvement to what you have and say that it’s worth the effort to do something fundamentally new. You don’t get Zipcar by building better cars at GM, you get them by rethinking the product that GM sells, being the physical object, cars, to the desire people have to have available, reliable, personally appropriate transportation, and working backward to what the ultimate need to be met is.

Again, Reese touched on this point, I think he used the word dematerialize, I’ll say de-thing-orient. The Economist, for example, has done some articles on how the next generation of what people used to expect to be home owners and car owners, is the despair of those industries, because they don’t aspire to own those things, they would prefer to think of them as services they obtain.

I think the disruption will take place by saying, computation used to be an amazing thing, and then it started to become very cheap. Then connecting the computers started to be complex, scarce, and expensive, but now that’s ubiquitous. Making better, faster, cheaper computers and connectors is really not an opportunity to add a lot of value. Instead what we have now is the situation where by default, when a piece of data comes into the world, and a lot of pieces of data are going to come into the world in the next couple of years, they’re born, by default, making them defenseless, instead of being born by default with trust, security and identity wrapped around them.

So, to get back to your original question, what’s the big disruption that is coming? I think the big one that is going to come is from building containers for trust after we’ve got the data in one place to rethinking the way things are done so that identity and protection and trust are the new defaults and once we’ve got that, once people believe that, I think we’ll get over what is currently a major drawback to the expansion of these services and markets. Right now people are justifiably nervous. One of the phrases we heard today was enmeshed systems, and that’s much better than embedded systems, but really what I think people see are “entangled systems” and that is delaying the adoption of these things. I think that is the big challenge that we have to find fundamentally new ways of making trust and security inherent instead of optional.

Timothy Goddard

Thanks Peter. Now, I’d like to open that question up to any of the other panelists. What verticals in particular do you see coming? Or do you take a more horizontal view, as Peter does?

Peter Coffee

I’d like to weigh in on one specific vertical that I didn’t mention specifically before, but healthcare is going to be among the leaders in this revolution. We already have an expectation in the United States thanks to the Affordable Care Act of much more ownership of things like your medical records, the visibility of the services you’re getting and the prices that you’re paying. We have barely begun to see the disruption in healthcare that’s going to be afforded by this combination of patient ownership and patient-centric service rather than provider-centric services, which is what we have now. Combined with the opportunity for ubiquitious connectivity of product to make much more data available on people’s actual behavior and lifestyles, in line with much less procedure and medication oriented healthcare and much more behavior and lifestyle oriented healthcare.

So if you’re looking for the single biggest disruption, healthcare touches everybody and is going to go through a massive transformation in a remarkably short period of time.

Timothy Goddard

Thank you, Peter, that was actually one of the questions that just came in.

We do want to thank all of our panelists for their participation, and we look forward to having you guys back on for future events. Thanks to all our attendees, and let’s go to our close.

Introduction

Bruce Milne

Welcome and thank you for joining us. This is Forecast 2015, our global tech M&A report. I’m Bruce Milne, CEO of the Corum Group, your conference sponsor.