Forecast 2016 - Global Tech M&A Report

Introduction  

Bruce Milne

Welcome to Forecast 2016, global tech M&A. I’m Bruce Milne, CEO of the Corum Group, your hosts. We have a jam-packed report today with expert predictions, market data on 30 sectors, and our new top ten disruptive trends report.  

But before we get into that, let me make a few introductory comments. In 2008, we were preparing for this very same annual report, where it became obvious to us that there was something terribly wrong. The government was saying not to worry, Wall Street was saying the worst of the stock market drama was over, banks were still lending on over-valued property. But to us at Corum, with all of our live conferences around the world, heavy research, and daily contact with buyers and sellers, we were hearing alarm bells. Instead of our annual report in mid-January, on December 18 we rushed out a conference titled, “Worried about your company’s future? You should be.” Turns out everyone was worried. The conference and re-broadcast was slammed. 600 CEOs and investors tuned in and heard us tell them to cut now or their companies might not survive. We like to sell software, IT and related technology companies. We’re good at it.  

I had a lot of people ask if we might be seeing the start of something similar to 2008. The answer is absolutely not. Unlike then, we don’t have systemic problems in our financial system. Other than energy and materials sectors, the US economy is motoring right along. Yes, China’s slowing, nothing new there, given their size, and their overbought young stock market is going through growth pains. If I worry about anything, it’s inflation. We’ve been spoiled lately. There’s been a rapidly rising dollar, which has lowered the price for everything from abroad. A boon to our pocketbook for much lower gas prices, and our country can still issue massive, low-cost debts. If that all turns around, watch out for inflation.   

5 Reasons for Continued Growth  

But for now we’re expecting another great year in 2016 for tech M&A. Here’s five key reasons why:  

Record cash, both strategic and financial buyers. Trillions available. Number one target? Tech. Tech is a strategic imperative. Companies have to buy. They no longer make this, they have to buy to stay competitive. Good growth. Generally positive financial markets. There are more buyers than ever, some you’ve never heard of, all competing globally. Near-record cheap debt for those leveraged transactions being done by the PEs.  

Thank you for joining us. I’m out of the country working on our new advanced tech M&A boot camp this spring, so I’ll turn things over to our moderator.  

Nat Burgess

Thanks, Bruce. Welcome and happy new year. This is Nat Burgess, live, speaking from the Corum Group headquarters. I’ll be moderating today’s event. I wanted to give you a little bit of an overview first. Here we are entering the new year, and as always, we have people making wild predictions, we have people showing up at the gym, keeping their resolutions, and we’re all trying to make a plan, we’re all trying to figure out what’s coming. In the last 48 hours, the Royal Bank of Scotland told us to sell everything. Panic. The market dropped 300 points. Meanwhile we had about $2.6B spent on Powerball lottery tickets, and now Goldman Sachs this morning predicted an 11 point uptick in the markets. What are we to think? How are we to plan?  

Change is incremental. The world doesn’t transform overnight. If I want to develop a confident, nuanced position on what’s coming in the new year, I need to do a couple of things. First I want to make some bold predictions, because we like to be bold in the new year. These come from the gut, and these are really my big, audacious bets on what might happen this year. We’ve done that in our 2016 predictions, and we’re also looking back to see how we did with our 2015 predictions.  

Second, I need a framework. I need to understand what the underlying tech trends are that are driving change, so I can have a lens through which to view and analyze the market. We’ve done that again this year, updating our top ten tech trends for 2016, and we’ll go through those in detail.  

Third, I need a thorough understanding of what happened in the past year, because past performance and trends really are the best predictors of what’s coming this year. We have that in spades today with our detailed research report from Elon Gasper and his team.  

Finally, most importantly, I need to find some really smart people and ask them for their opinions on what is coming. I’m really excited about the panel that has assembled today to help us understand the year ahead.  

That’s our overview on the agenda for today. We’re going to kick off our session with a quick update from Jon Scott in Amsterdam on a transaction that he recently closed with Namirial.  

Field Report: SIGNificant Software acquired by Namirial  

Jon Scott

The e-signature marketplace is growing significantly and the investment in this sector is huge.  In 2015 Docusign itself raised another almost $250M. The interesting thing is that the electronic signature piece is just one component of the solution. The entire solution including certification is what is known as the Digital Transaction Marketplace or DTM.  

I had the pleasure of meeting Gerald Cesar, the CEO of Austrian based Signficant Software when I was chairing the World Financial Symposium’s London Growth and Exits conference. 

In follow-up discussions Gerald began discussing—actually educating me—on the fast growing needs of organizations conducting secure digital transactions. He told me Forrester Research who was reporting a 53% average annual growth in the use of e-signatures and the number of transactions settled using them projected to top more than $700M in 2017. What really caught my attention was a new Regulation of the European Parliament in standardizing and promoting e-signature adoption across Europe. 

He also pointed out that regulatory requirements were very different in the US than in other geographies.   

Gerald and I got together last May to discuss their strategy. 

They had been approached and wanted to look at their options and be sure they conducted a global process.  We looked at the market and at both the obviously dominant players in the space as well as smaller companies in the electronic records certification space. We had a number of meetings with interested parties who recognized the differences in the European opportunity and were interests in acquiring the company.  

Turns out that Namirial, an Italian-based company in the Trust Services like e-signature, registered e-mail, e-invoicing and digital archiving, with more than 500,000 customers, had the best grasp of how the companies could fit together. The acquisition was announced in mid-December. 

The combined company can now provide an omnichannel Digital Transaction Management solution legally compliant throughout the European Union that allows its clients to conduct business transactions, anywhere, anytime and on any device. This DTM market dynamic cannot be ignored and there is a clear need for a strong European based player, which is now addressed by the combination of Significant Software and Namirial.  

Corum 2015 Predictions Scorecard  

Nat Burgess

Thank you, Jon, and congratulations on a fantastic deal.  

Now we’re going to do something I haven’t seen a lot of people do, which is go back a year and score ourselves on how we did with our predictions for 2015.   First, we predicted that Chinese web companies would move into the US slowly, and then Alibaba would buy Yahoo. It didn’t happen. The Chinese market melted down, things slowed, so we’ll give ourselves a 0 there. But it still could happen.  

Second, Google would give up on their Glass hardware and sell the assets to Lenovo. Well, they gave up on the hardware but they didn’t sell Lenovo the assets, so we’ll give ourselves 5/10 on that one.  

Number three, major IT services firms would shift significant resources and focus to the Internet of Things. This is happening. We don’t have a lot of obvious public announcements or events to verify it, but it is happening. Big spend there. We’ll give ourselves 6/10.  

Next, adtech companies would continue to be in high demand, even outside their core sector. We did see Verizon make a bold move here, buying AOL, so we’ll give ourselves a 7/10 on that.  

Now on the last three, I think we were on target. Wearable fitness tech would be integrated into healthcare. Definitely happening. The personal data cloud that we’re creating around our Fitbits, etc, is getting woven into the medical and provider infrastructure.  

Next, security breaches would not slow down, and in fact there would be the first major, publicized IoT breach. That was our prediction. Next thing you know, someone highjacks the electronics in a Jeep and runs it off the road. Exciting times for Chrysler and definitely 10/10 on that one.  

Finally, a major fashion retailer or designer would make a move into wearables. Fossil bought Misfit, and that’s how we did in 2015. Now let’s take a look ahead at our predictions for 2016.  

2016 Tech M&A Predictions   Now, these are boiled down from a list of probably 30 that came in from our team around the world. Some of them we couldn’t air in public, some of them are pretty exciting, and if they do come true, we’ll wish we’d have put them on the list.  

Let’s start with number one: Vehicles, not houses or cities will become the central hub of Internet of Things, driving a global M&A wave. This is a prediction based on interaction we’re having with major electronics companies that we can’t really talk about. But we see this really driving IoT investment and M&A this year.  

Next, food ordering and delivery apps will be integrated into gaming and social media. If you played long enough to be hungry, that pizza may just show up at your door.  

Asian internet giants will acquire strategic European travel sites and services. This maybe sounds a little far-fetched, but hold your judgment on this until you see Elon’s report, because there’s some interesting things happening globally and we do believe in this one.  

Next, consumer traction in entry-level VR will be driven, not by games, but by immersive sports and viral videos. Stay tuned. Many of you subscribe to the New York Times, got to play with the Cardboard, see what’s possible there for immersive documentary and viral videos.  

Apple, our favorite consumer brand will make a major acquisition in IoT and/or Enterprise.  

Private equity will acquire an under-performing public internet such as Groupon, Retailmenot, or, if Alibaba doesn’t get them first, Yahoo.  

Booming India product M&A will double, including at least one megadeal. Stay tuned for the data on what happened in India last year, and this one looks pretty solid.  

Finally, drone software M&A takes off, with image processing and analytics at the forefront. So those are our predictions. We’ll revisit them this time next year and see how we did.  

Corum Top Ten Disruptive Technology Trends 2016  

But now let’s move on to the next part of our presentation, which is the framework through which we view the evolution of the market. We update these every year. We find it very useful to have an objective lens. A lot of the top ten trends and lists that you’ll see on the web are driven by vendors and they are driven by an agenda to serve the purposes of commerce and specific companies. That’s great, that’s how capitalism works. Our is really based on input from 25 people around the world, watching events, watching deals and trying to figure out where the big moves and trends are. We’ve pulled those heads together to go through the top ten tech trends, in detail, one by one, starting with our own John Norton on online exchanges.  

Top Tech Trend #1: Online Exchanges  

John Norton

Ebay and Amazon were early online exchange successes, bringing together buyers and sellers without the middleman. Twenty years later, targeted online exchanges address specific markets more effectively than their broad-based predecessors.  

Craigslist can be seen as an index for these targeted exchanges. Pick a category - there is likely an Online Exchange built for it. “Tickets for sale” is a crowded space covered by Seatgeek, Stubhub, Seatwave and many others—classic disintermediators. Choosing a category and building an exchange is the easy part. Drawing enough participants to make an exchange viable is another matter. When your market has a dominant player it can be difficult to get a foothold, but they may be a potential acquirer. In the ticketing space, Ticketmaster has done four deals in just the last two years.  

Larger exchanges will continue to diversify and grow through acquisition, taking out emerging competitive threats, but online exchanges breaking new ground in the enterprise space will be particularly attractive targets, as procurement departments find the same value in the model that consumers have.  

Nat Burgess

Thank you, John. Next up from our Amsterdam office, Mark Johnson to talk about Digital Currency Flow.  

Top Tech Trend #2: Digital Currency Flow  

Mark Johnson

Payments M&A dominated Fintech transactions in 2015, and we believe this trend will continue in 2016.  

Mobile Payments have finally become a reality. Apple Pay is now accepted by national retailers across the US and in Europe with collaborations with the largest card issuers. The other leading handset manufacturers and OS vendors are following suit such as Google Pay, Samsung Pay, and LG Pay. There is massive opportunity for banks, card issuers, and payments processors to deliver mobile payments to more global markets and a wider distribution of customers through acquiring payments technology vendors. Banks are under threat by new entrants transforming the customer experience, and therefore commanding a higher market share of the total profits. Additionally, cross border payments inefficiencies remain, creating opportunities for new technology solutions.  

And finally, digital payments continues to grow, driven by low costs, ease of use, and improved banking infrastructure.  

Nat Burgess

Thanks, Mark. Now let’s welcome Dave Levine from our Vancouver office, a Corum VP with deep experience both in supply chain and health tech.  

Top Tech Trend #3: Connected Health  

Dave Levine

As consumers of health care services use mobile apps, smart phones and wearable tech, the type and amount of available medical information has grown exponentially.  

Harnessing this data to extract actionable and predictive intelligence will be a key driver for connecting the entire healthcare ecosystem in ways that will improve the delivery of health services.  

This Connected Health trend drove deals well beyond traditional health IT and life science acquirers-Under Armour’s acquisition of MyFitnessPal and Fossil’s acquisition of Misfit wearables highlight the convergence of health and ‘non-traditional’ health sectors. In 2015, we also saw Adidas and Weight Watchers acquire fitness apps and IBM acquire a digital imaging business and a couple of healthcare data companies to bolster its Watson health business.  

This activity will accelerate, as companies with patient-centric technology that are successfully driving healthcare disintermediation and pushing inefficiencies out of healthcare systems will demand the attention of both traditional and non-traditional health-tech acquirers.   

Nat Burgess

Thank you very much. Now we’ll move to another Corum VP here at headquarters. Daniel Bernstein has been doing a lot of work in social analytics and ad tech.   

Top Tech Trend #4: Omnichannel Sales  

Daniel Bernstein

In an age where consumer platforms and devices are continually fragmenting, Omnichannel Marketing led the way, seeking to reach the consumer with messaging no matter the medium. The next phase is Omnichannel Sales, uniting buyers and sellers at the point when a consumer is ready to purchase.  

Whether it’s ecommerce integrated into a twitter feed, TV set top box, or online, you can now order Domino’s Pizza anywhere you are. If you run a big commerce site and live in San Francisco, you can integrate a same day delivery platform courtesy of Uber, effectively competing against Amazon’s same day delivery initiative.  

This trend is making its way into the enterprise, as companies like Cloze transform small workforces into a more effective omnichannel sales organizations through data science, mobilization, integration with social networks, and other methods that bring both persuasion and transaction as close to the buyer as possible.  

Nat Burgess

Thank you, Daniel. Now, over the past couple of years, you’ve heard our VP Rob Schram leading events on the Internet of Things and he’s here today to talk about the importance of that trend.  

Top Tech Trend #5: Internet of Things  

Rob Schram

The Internet of Things drove over $21B in 2015 deal value. 

As billions more “things” come on line, the IoT’s virtualization of the physical world could create as much value for consumers and enterprises as the Internet itself.  

IoT M&A was active across the board, with diverse buyers like Google, Qualcomm, Adidas, Cisco, and farm machinery maker Deere & Company. Automotive was a dominant sector with strong trends in vehicle-to-vehicle communications, intelligent transportation systems, remote diagnostics, usage-based insurance solutions, and traffic data services.  

As IoT hardware moves towards commoditization, the true opportunity lies with software and platform providers creating value in areas such as edge analytics, IoT operating systems, gateways/aggregation, modules and connectivity, wearables, big data, cloud, and middleware and applications that also provide data privacy and cyber-security. Companies poised to address this spectrum of IoT requirements will be highly attractive acquisition candidates in 2016 and beyond.  

Nat Burgess

Thanks, Rob. Now over to John Simpson to talk about a trend that we started working on a couple of years ago and it has now been picked up by Gardner and others. That is Enmeshed Systems.  

Top Tech Trend #6: Enmeshed Systems  

John Simpson

Enmeshed Systems fuse millions of lines of software code with ever-smaller and faster hardware platforms and the result powers new generations of consumer and commercial products. The primary driver for this fusion is the competition to deliver huge performance improvements in arenas as widespread as connected cars, internet security, advanced avionics, factory robotics, facial recognition, and even self-diagnostics for sick jet engines. 

Such widespread market opportunities drove much M&A activity in 2015 including the $11.8B acquisition of Freescale Semiconductor by Dutch firm NXP, and Intel’s biggest ever acquisition, the $16.7B purchase of Altera Corporation in December. This unprecedented spectrum of applications is also driving strong deal interest in growing mid-market tech companies that have created real value in key niches of the enmeshed ecosystem.  

Nat Burgess

Thank you for that. Now let’s shift our attention to AI enablement with Allan Wilson, from our Austin office, who spent 30 years wrestling with data problems and data intelligence.  

Top Tech Trend #7: AI Enablement  

Allan Wilson

The young artificial intelligences from companies like Google, Apple, IBM and others are hungry for data and for problems to solve with that data. Big Data analytics is the foundation for all AI, from Siri pulling a restaurant from a repository based on a GPS location and cuisine preferences, to a home’s climate control system learning the behavior of the residents and adjusting dynamically based on needs, time of day and temperature, to IBM’s Watson making a medical diagnosis using patient history, current data and the entire history of medical literature.  

Watson is the farthest along of these new conversational AIs, and is already driving M&A, with Merge Healthcare and the Weather Company now available to provide input and output for Watson. The others—Cortana, Siri, Alexa and many others—won’t be far behind.  

In particular, they’ll be seeking companies with unique stores of data and unique opportunities for AIs to prove their value.  

Nat Burgess

Thank you, Allan. Now we go to Corum’s chairman, Ward Carter, to give us an update on positioning intelligence.  

Top Tech Trend #8: Positioning Intelligence  

Ward Carter

As an amateur race car driver I never underestimate the importance of location precision and intelligence. 

Knowing the car’s speed, attitude and position relative to other objects is critical. 

Use cases for proximity technology are also racing ahead, enabled by evolution of tools and data for a new level of precision and awareness.  

With proximity marketing, consumers receive targeted messages based on proximity to retailers, allowing delivery of discounts, coupons, recommendations and awards to potential customers.  

Drones are becoming ubiquitous, finding commercial applications beyond consumer markets, with retail delivery no longer just a dream.  

The imminent reality of autonomous vehicles relies on these new levels of precision, situation awareness and contextual insight. Google, Ford, Uber, GM, Lyft, Toyota, Tesla and others making major investments here demonstrate the scale of the opportunity.  

Positioning intelligence has become a key dimension in business data, while providing mechanisms to provide personalized services and improved consumer experience. With the finish line far ahead but the payoffs along the road so compelling, this disruptive technology will continue driving M&A for some time to come.  

Nat Burgess

Thanks, Ward, and congratulations again on having the winning autocross car this year. Now we go over to Jim Perkins to give us his update on sports and gaming.  

Top Tech Trend #9: Sports & Gaming Jim Perkins  

Sports and gaming continue their ascent to cultural dominance. In gaming, that’s reflected in disclosed deal value that’s higher than ever, driven by the sector’s record deals – first Microsoft’s $2.5B acquisition of Mojang and the runaway hit Minecraft, soon dwarfed by Activision Blizzard grabbing King Digital and Candy Crush for $5.9B. This indicates more to come from major players, and from China, but at the moment fewer small studios are being picked up as the giants focus on consolidating.  

But deals are happening where sports and gaming blur, in emerging sectors like esports and daily fantasy, plus continually in gambling technology. And the importance of gaming means that even when the market for studios is slow, high quality companies who have built superior games using their own IP are in demand, particularly from Asian buyers.  

A good example was Hong Kong based Leyou and Beijing’s Perfect World acquiring Corum client Digital Extremes. 

It will be interesting to see where Leyou and other Asian-based gaming companies expand in 2016.  

Nat Burgess

Thank you, Jim. Finally, you may have heard him running events lately for the World Financial Symposiums and writing on the topic. We now have Jon Scott in our Amsterdam office to talk about Data Security.  

Top Tech Trend #10: Data Security  

Jon Scott

All these trends result in new vulnerabilities, and major data breaches have affected nearly all consumers, and many governments and large enterprises. 

This is complicated by new types of attacks, such as the advanced persistent threat, or APT. 

In response, the major security suppliers Symantec, McAfee and Palo Alto Networks founded an organization called the Cyber Threat Alliance to coordinate defense efforts.   

With such a wide range of threats, an outsized amount of cybersecurity innovation is carried out by small startups who become significant subject matter experts in their specialties. 

Often, by the time a new threat is identified it doesn’t make economic sense for a large vendor to spec, hire and develop new functions, when they can go out and buy a solution immediately, and these smaller companies can capture significant value.  

Examples are Cisco acquiring Lancope, focused on monitoring suspicious traffic patterns, for $453M, and Splunk’s $190M acquisition of Caspida, a behavior analytics provider. 

Innovative companies like these will make 2016 another record year for data security acquisitions.   

Nat Burgess

Thank you, Jon. That concludes our brief presentations on the Corum Top Ten Tech Trends for 2016. But stay tuned for more discussion when we get to the panel at the end of the broadcast.  

Corum Research Report: Microsoft Emerges as the Top Buyer for 2015  

I’d like to now turn it over to Elon Gasper and his team as we go over the Corum Annual Research Report.  

Elon Gasper

Thanks, Nat. We begin with a look back at the 2015 public markets, which hit record highs amid volatility, while demonstrating continued divergence between tech-heavy indices and broader measures such as the Dow.  

In context, we see 2015 producing the first correction of this 7-year bull market. But neither it nor the current January pullback has stopped M&A, which continues apace after hitting an all-time high of $4.7 trillion dollars last year.  

That holds true for tech M&A, too, as our Corum Index shows, with total tech transactions up 11% year over year, including a historic 59 megadeals. The continuing waves of consolidation these big dominos represent are one more reason this a great time for sellers to calibrate and realize strategic value.  

Our Pipeline readings show private equity deals continued to take share from direct VC-backed exits, while our Attributes metrics printed a slight drop in cross-border deals.    

Microsoft broke through as our top strategic acquirer, confirming this webinar’s prediction 2 years ago of a sea change in the company’s M&A coming in with new CEO Satya Nadella. Its broader, gap-filling strategy rounded up outside assets in the Mobile, Security, Analytics and Enterprise spaces, plus a few others such as stylus maker N-Trig and 3D physics platform Havok, divested by Intel.  

Internet marketing conglomerate J2 tied for second with 19 deals, nine announced in October alone, as it rolled up small businesses across five countries. Sharing second, Accenture also rose the most last year, more than tripling its 2014 leaderboard total, with many IT Services deals to strengthen its position against rival IBM, which also tripled, with many of its 15 purchases related to expansion of its Watson AI unit. Even at individual buyers, M&A goes in waves; you must watch for these opportunities, not just your own company’s maturity, when considering exit timing.  

Against those strategics, top PE buyers gained deal count share, as Vista takes over the number one spot, trading places with Insight, with ABRY again rounding out the top 3. The next 3 also contain the same buyers as the prior year, followed by Marlin returning to the chart after a year’s absence. We’ll examine many of these deals with further analysis next month in part two of this Annual Report.  

Last year’s 59 megadeals totaled $318B, unevenly distributed among our six sectors, with nearly a third coming from just Infrastructure. Yasmin, what’s our story there?  

Yasmin Khodamoradi

It’s a historic wave of consolidation headlined by Dell with the largest tech acquisition ever, buying storage titan EMC for $63 billion to gain enterprise share against HP and IBM.  

Elon Gasper

Close behind came Vertical, whose 17 deals included Scottish energy market intelligence specialist Wood Mackenzie, bought by Verisk for $2.8 billion at nearly 8x revenue.  

Yasmin Khodamoradi

In IT services, Capgemini out of France increased North American market share with the four-billion-dollar acquisition of IGATE at 3.5x revenue, welcoming clients such as GE and Bank of Canada.  

Elon Gasper

Internet education company Lynda enrolled in LinkedIn for $1.5 billion at a 10x revenue multiple in a deal worth almost 3 times all that buyer’s previous acquisitions combined.  

Yasmin Khodamoradi

Candy Crush maker King Digital was swallowed by Activision Blizzard for almost $6 billion and 2.4x revenue, playing catch up in the fast-growing mobile gaming market.  

Elon Gasper

Finally, in the Horizontal sector, Lexmark made its largest acquisition ever, printing a billion dollar check for business process management software provider Kofax.  

All sizes of deals were up globally, with North America keeping its top spot, yielding over half a trillion dollars in total disclosed transaction value.  

Yasmin Khodamoradi

North American targets proved especially attractive to Asian buyers, particularly those in Japan and India.   

Japanese automation manufacturer Omron purchased California-based Adept, the largest American manufacturer of industrial robots for $200M and 3.5x revenue.  

Panasonic enhanced their food service technology offerings by purchasing restaurant management SaaS provider Quick Service Software out of New Brunswick.  

And New Jersey company Viteos, a provider of financial BPO services, was bought by Indian IT services giant Wipro for $130M, furthering their strategy of investing in industry vertical platforms.  

Elon Gasper

Deal flow in Latin America surpassed 2014 numbers on both the buy and sell side, with the number of buyers more than doubling.  

In Brazil, Bemobi, the provider of a Netflix-style mobile app discovery service, was sold to browser maker Opera out of Norway for nearly $30M.  

Dentsu Aegis also expanded its Brazilian footprint with two mobile marketing service providers, Redirect and Pontomobi.  

Yasmin Khodamoradi

Western Europe showed robust deal numbers, with a significant portion of European targets coming out of the UK and the DACH region.  

In Berlin, to-do list app Wunderlist was snatched by Microsoft for a rumored $100 to 200 million to build on their mobile-first strategy.  

British AI language processing software provider VocalIQ was acquired by Apple to enhance the capabilities of Siri.  

And deal activity in the Nordics grew slower than Western Europe, but there was still significant activity as Corum client Cabforce, a taxi startup from Helsinki, was picked up by Dublin-based rental platform CarTrawler.  

In Eastern Europe, M&A remained relatively flat due to the uncertain economic environment. Nevertheless, SequenceIQ, a Hungarian Hadoop specialist, was rolled up by Hortonworks.  

Elon Gasper

Turning to Asia Pacific, we saw deal numbers up across the board, especially in India, where the number of buyers and sellers more than doubled.  

Freshdesk has been making moves to compete against rival Zendesk, picking up three Indian help-desk startups: Konotor, Frilp, and 1Click.  

In China, Beijing-based SuchWare Software was bought for $18.5M by Beiming Software from Guangzhou to complement its integrated enterprise solutions.  

In Tokyo, peer-to-peer marketplace Ticket Camp was acquired for $95M by social networking service Mixi, diversifying away from gaming.  

And downunder, newly public Austrailian payment solutions provider MYOB bagged a pair of Kiwi payroll firms, Ace and IMS.  

Yasmin Khodamoradi

Finally, in the Middle East, deal count and volume are up significantly over the previous year, with the total disclosed value out of Israel alone nearly doubling to $2.4B. Security was at the forefront, with buyers like Microsoft, CA, and ARM making acquisitions throughout the year.  

Elon Gasper

Among our market sectors, we see a surprisingly stable order of relative valuation to sales ratios, while the EBITDA metrics have been converging as Consumer and IT Services sector values rise. We’ll examine this further in our written report, but now, to begin our deeper dive into our six sectors and 30 subsectors, please bring us up to date on the Horizontal Applications story, Amber.   

Horizontal Software Valuation Metrics  

Amber Stoner

The horizontal market has seen fluctuations in sales multiples all year, eventually ending 2015 up from January’s numbers. EBITDA multiples however ended the year slightly down from where they started 2015.  

The HR, BI, and CRM subsectors all saw drops in sales multiples, though HR and SCM continue to set themselves apart from the rest of the horizontal subsectors, where our newly introduced Payments subsector is the highest valued with over 4x sales and 16x EBITDA multiples.  

Big data and predictive analytics were key themes across the horizontal sector in 2015. Microsoft made five analytics acquisitions this year, including R language specialist Revolution Analytics for an estimated $115M.  

Other analytics deals included marketing analytics provider MarketShare’s acquisition by NeuStar for $450M, an 8x revenue multiple, and predictive analytics company Prelytix being bought by financial software vendor First Derivatives.  

In the back-office realm, Enterprise Mobility has been a hot topic as companies strive to minimize their wireless costs. Corum client eMOBUS was picked up by Asentinel for its unique technological approach to the problem. Asentinel itself was acquired by Marlin Equity at the beginning of the year, while competitor MOBI Wireless was snagged by Bregal Sagemount. With Private Equity making bold moves in the space, we’re watching to see if traditional telecom expense management firms like Tangoe become targets for private equity.  

The twin trends of Omni-Channel Sales and Digital Currency Flow are driving consolidation in the e-signing space. As Jon mentioned earlier, Corum client Significant Software was acquired by Namirial. In Canada, Silanis Technology was bought by VASCO Data Security for $85M, adding esignature capabilities to its digital authentication products. Proof-of-delivery solution provider JumpTrack was snapped up by Carlyle-backed ECi to integrate its e-signature capture software into ECi’s offerings to SMBs.

And while omnichannel trends drive disruption, the e-mail channel continues to be a top marketing priority, marked by significant consolidation this year. Corum client EmailDirect was grabbed by top acquirer j2, while NetSuite landed Bronto Software in a $200M transaction, and the trend was capped by the Constant Contact megadeal, with Endurance International adding one of the top names in email marketing to the suite of products layered on top of the company’s web-hosting core.   

What happened in IT Services last year, Aaron?   IT Services Software Valuation Metrics  

Aaron King

Valuations are up across the board in IT services, with sales and EBITDA multiples rising over the year in both developed and emerging markets. Sales multiples rose slightly faster than EBITDA, especially in emerging markets, communicating improved margins.  

CSC spent over $1B across three major transactions around the globe, plus two more with values undisclosed. It bought Australian firm UXC for almost 308 million, at 0.6x sales and 9.6x EBITDA. UK’s Xchanging was snapped up for $720M and 0.9x sales despite a negative EBITDA, while Chicago-based Fruition Partners, a ServiceNow consulting firm, was grabbed for 130 million at a notable 2.4x revenue. As with many services buyers, CSC appears to be filling gaps in geography and expertise.  

Meanwhile, ecommerce integrator CrossView, with dual skills in IBM WebSphere Commerce and SAP hybrid integration, was snatched for 38 million by digital agency and ecommerce solution provider PFSweb.   

Artem, could you tell us a little about the emerging markets?  

Artem Mamaiev

In the emerging markets, Ukrainian near-shore developer Ciklum, a Corum Client for an earlier investment by Horizon Capital, was handed over to the Soros Fund for $180M.  

Polish web hosting service Home.pl was picked up by 1&1 Internet for nearly $150M, consolidating the Polish market as 1&1 considers an IPO.  

In India, BPO operations provider Intelenet Global Services was purchased by Blackstone for almost $400M and 7x EBITDA, the largest-ever acquisition by Blackstone in India.  

Finally, in China, Hangzhou Maimiao Network Tech, a software developer focused on online marketing for Ali Baba, was sold to Shenzhen Comix Group for over $55M at 13 times revenue.  

How did vertical markets perform, Yasmin?  

Vertical Software Valuation Metrics  

Yasmin Khodamoradi

Vertical market multiples ended the year slightly higher than where they began, with plenty of fluctuation in between. The gains in healthcare, financial services, and the architecture, engineering, and construction sub-sectors helped to somewhat buoy stagnation in other verticals.  

In the healthcare market, the consolidation of electronic health records has continued, albeit at a slower pace than before. Unlike 2014, there were no EHR megadeals last year—though there may be more middle-market deals going forward as acquirers seek to fill gaps in their specialties and geographies.  

Key EHR deals included the acquisition of SaaS EHR provider HealthFusion by Quality Systems for $165M, and the roll-up of e-MDs, Corum’s Austin-based client, by Marlin Equity.  

We also saw an uptick in Health IT M&A activity in Europe, with multiple deals towards the end of the year. US-based CompuGroup Medical made four deals through assorted European subsidiaries, acquiring BS Concept Realization and CareTrace out of the Netherlands, Germany’s LMZSOFT and Italian healthcare website Medicitalia.  

We also saw significant interest in healthcare analytics, including Premier’s $65M acquisition of Healthcare Insights, and Centene’s purchase of LiveHealthier, which provides employee wellness analytics.  

The insurance industry has always been on the forefront of innovation in analytics, and DriveFactor, an automotive telematic analytics provider to insurers, continued that trend, selling to CCC for $22 million.  

Chicago-based workers comp specialist Vikaran, was sold to outsourcing provider Patriot National, with Vikaran’s Indian development center a key asset in the deal.  

Insurance agency tech was also in demand, as Corum Client QQ Solutions, a maker of software for smaller agencies, was acquired by Vertafore. And Canadian company Brovada, which offers tools for agencies, brokers and carriers, was acquired by Towers Watson.  

In Fintech, analytics was again a key theme: CoreOne was one of three acquisitions made by Markit Group last year, which spent $200M to get the New York-based regulatory reporting provider. Broadridge did five deals, most recently QED Financial, an investment accounting solutions vendor, and in England, financial modeling tool Tyche was acquired by RPC Consulting.  

There were also a number of analytics deals in the real-estate sector, as strategic and private buyers harnessed the opportunity to capitalize on data-driven services.  

FNC, a property appraisal automation software firm, was snapped up by CoreLogic for $475M, its second acquisition in the property valuation space last year.  

4tell Solutions, a provider of real estate and infrastructure performance management software was bought by Rubicon Technology Partners.  

Finally, Shanghai-based real estate Internet platform Anjuke was bought out by online classifieds platform 58.com for $267M, as it takes on established Chinese real estate sites like Soufun and Leju.  

Internet Software Valuation Metrics  

Elon Gasper

The Internet sector didn’t recover as much momentum as others after the midyear market drop but remains a pressure cooker of tech change.  

Its social network subsector retained the top value position, while ecommerce fell amid a perception of depleted opportunities. Diversified models defied commoditization to rise in value.  

2015 marked milestones in the online travel industry, with Seattle-based Expedia taking in competitors Travelocity and Orbitz for about a billion and a half total. Expedia’s latest and largest purchase, vacation rental site HomeAway for nearly $4B, addressed the threat of newcomer AirBnB as well as longtime rivals Priceline and TripAdvisor.  

Over in the EU, Swedish online travel agency eTRAVELi was bought by German media conglomerate ProSiebenSat.1 for over a quarter billion, its largest travel investment.   Elsewhere in the Travel and Leisure subsector, in the online take-out buffet, Just Eat put away the largest single portion, dishing out $682M for Australia’s food marketplace Menulog, plus a couple of Italian ordering platforms, Clicca e Mangia and DeliveRex, plus Canada’s Orderit for dessert.  

Rocket Internet and Foodpanda again made the most deals in the space, a varied diet of six food ordering acquisitions -- all in the first four months of the year.  

The top food ordering acquirers were rounded out by GrubHub’s three deals, and Delivery Hero making Middle East Inroads, acquiring Yemeksepeti - Turkish for Market Basket—for $589M, and Kuwait’s Talabat.  

The online dating space was nearly as active as travel and leisure, set against the romantic backdrop of Match Group’s IPO, which it prepared for by acquiring Canadian dating service Plenty of Fish for $575M.  

Other dating matches happened globally, as in China Jiayuan hooked up with competitor buy-HUH’s LoveWorld for a quarter billion; Britain’s Oakley Capital paired up two German dating services, Parship and ElitePartner, and JSwipe found another Jewish-focused dating platform, as it was acquired by JDate’s parent company Spark Networks.  

Infrastructure Software Valuation Metrics  

Amber Stoner

Sales multiples in the overall infrastructure market fluctuated in the latter half of 2015, while still ending the year roughly in line with where it began. EBITDA multiples didn’t fare as well, ending down from the beginning of the year.  

Valuations among the 6 infrastructure subsectors mirrored the sector as a whole with only IT Services Management rising in both sales and EBITDA multiples, as Storage and Network Management saw gains in sales and EBITDA multiples respectively. 

And while the Security subsector did have dips in both metrics, the critical nature of security kept deals happening at a rapid pace, including the acquisition of Websense by US defense contractor Raytheon for $1.3B, making it clear that data security is an unavoidable component of national security.  

Enterprise data encryption was a key aspect of the security trend, provoking a number of industry juggernauts into M&A activity.  

Microsoft did its third Israeli deal in a year buying enterprise data encryption provider Secure Islands for an estimated $85M. With Aorato and Adallom already onboard, Microsoft is reinforcing its enterprise security capabilities via outbound acquisitions, alongside Intuit, which snapped up Porticor, another Israeli data encryption SaaS vendor; HP, which acquired encryption technology provider Voltage Security for an estimated $175M at 5x revenue; and France’s Thales Group, which paid $400M for data protection firm Vormetric.

In the storage space, Sanbolic, a virtual storage optimization company, was bought by Citrix for almost $90M to optimize Citrix’ virtualization technologies, while SolidFire, an all-flash storage maker, was acquired for $870M by NetApp, as the industry veteran races to keep up with new technologies amid shrinking revenues.   

And in a deal driven by the Enmeshed Systems trend, Canadian provider of M2M intelligence solutions, B+B SmartWorx was purchased by Advantech for nearly $100M, as the Taiwanese PC maker angles for a piece of the North American and European industrial connectivity market.  

That leaves us with the Consumer sector; Aaron?  

Consumer Software Valuation Metrics  

Aaron King

Valuations in the Consumer market went on a bit of a roller coaster ride this year, as fitness, entertainment, wearables and media continue to intermingle and fuse. Both multiples ended the year very slightly above where they began, and are beginning to climb again after the August market correction. Entertainment continues to be the highest valued among the subsectors, while fitness tracking became a fight club for consumer players such as Under Armour, which knocked out Nike and Adidas this year to claim the champion title of largest fitness community. In February, the Baltimore-based giant grabbed Danish fitness app Endomondo and food tracker app maker MyFitnessPal, for $85M and $475M respectively, finishing up with workout finder app Gritness.   

The Internet of Things is pushing traditional companies toward technology acquisitions, including, surprisingly, retail giant Sears absorbing moisture sensing tech WallyHome.  

In the UK, AlertMe, a connected home tech pioneer, was sold to British Gas for over $67M. Apart from solidifying the energy giant’s footprint on the home automation front, the transaction should expand AlertMe’s services offshore since British Gas is a part of a larger Centrica Group.  

In the gaming space, Ubisoft took a shot at buying up studios with a trusted partnership background. It started with Ivory Tower, French developer of The Crew, and closed out with Canadian Longtail Studios, now Ubisoft Halifax, with an unorthodox focus on triple-A mobile games.  

And Sega is trying to get back into the fight by going after studios in the US and UK, including Demiurge Studios from Boston, San Francisco-based Ignited Artists and England’s Space Ape Games.  

In the music arena, Pandora bought music analytics firm Next Big Sound, and a couple of months ago, spent $75M to take Rdio, while, US-based Soundtracker was nabbed by Italy’s Sounday, enhancing the latter’s music ecosystem with some geolocation tech.  

Elon Gasper

And finally, in a music deal this week that’s “Gangnam Style” in more ways than one, we celebrate 2016’s first megadeal, as Korean mobile platform operator Kakao acquires K-pop streamer Loen for $1.5B.   Nat, what do you think this music megadeal going first might bode for tech M&A in 2016?  

Nat Burgess

Well, Elon, we’re no longer waiting for the Korean market to pop. It happened. There is a cultural renaissance happening there, it’s a center for music and movies and actually one of the best-run companies I’ve worked withrecently is out of Korea. Things are happening all over and it’s an exciting time. Thanks for all the work you and your team put into the research report.  

Tech Luminary Panel  

We’re going to shift gears now to our special guests, our panel. I’m going to do just a quick high-level intro of the four people who have joined us today and then we’ll get right into it. First, Peter Coffee, he’s been on forefront of every major trend in tech, from PC to the cloud and we’re very excited to have him with us today. Dr. Karl Popp from SAP, written books on software ecosystem, on M&A, he’s both driving deals at SAP and also thinking about the process of M&A, fine tuning it. We have Reese Jones, Singularity University, but you all may remember the several ground-breaking companies he’s founded. He’s a venture partner at some of the leading venture firms in the valley, including Excel. Excited to have him with us today. Finally, Mukund Mohan, who is a serial entrepreneur. He’s founded and sold three companies; he’s been an engineer at Cisco and HP, and he’s now with Microsoft Venture Group, helping to lead teams that are both investigating investment opportunities, and investing.  

Let’s start out with Peter Coffee.  

Peter Coffee

First of all, I’m really happy with the ten trends that have been brought forward for this discussion. Every one of them is high on the list of things that I am trying to bring to our customer’s attention. Where I would go forward from there, would be to say that the most interesting conversations we’re having now result not from any one of those trends, because anyone can extrapolate, but from what I call triangulating, looking for ways these trends will play off of each other, or maybe creating some interesting tension among each other. The people who really master those interactions are the ones who are going to rise above the pack. For example, connected health is a tremendously important trend, but it does not just mean that today’s providers of health care products services are going to have a way to better, faster, cheaper delivery of their traditional products and services. They must be looking at connected health in the context of some profound improvements that need to be made in the area of data security, a lot of the initial work in connected health is what I call science project, that demonstrates that it’s possible to connect things, but does it in a way that is very easily hacked or can be quite unreliable. It is going to draw challenge and opportunity from the emergence of the online exchanges, one of the other important trends that was discussed. Healthcare is now going to be seen as much more of a collaboration among the care receivers and providers, instead of just the receipt of those services from the god-like gatekeepers of health. That’s going to change the whole culture of that industry in some really important ways.  

Another example: the enmeshed systems trend. That’s very interesting, but it should not be viewed as merely an opportunity to optimize existing designs by saying “that can be done in software now,” the massive increase of connectivity is going to change the character of some products. Individual automobiles now, with autonomous technology, are going to start to behave as platoons of vehicles on the road. It’s going to change the whole experience of what it means to do automotive transportation. Even the boundary between hardware and software, that won’t just shift, it’s going to become dynamic, you’re going to see soft hardware. The field programmable array technology at the heart of Intel’s recent acquisition and 3D printing. All sorts of things that we used to think of as unambiguously hard are going to become much more dynamic. Digital currencies likewise will change a lot of markets in some profound ways, as well as creating some interesting challenges and really challenging institutions like healthcare and education in ways that they have not seen for decades. It’s a fascinating list and I would encourage people to look not just at the elements of the list, but really look for ways to triangulate among them.  

Nat Burgess

Thank you, Peter. Exciting times indeed. A lot of the great breakthroughs in science have come at the intersection of different practices. Peter’s point is well-taken, especially in a world driven by the internet of things and connectivity, it’s the interaction between these trends that will produce the most fireworks.  

We turn now to our special guest Dr. Karl Popp from SAP.  

Karl Popp

I’d like to give you a perspective on some of the things we see happening in the market along the Corum Top Ten Tech Trends. Let’s start with online exchanges. As you may know, we have created an organizational unit called Business Networks that comprises Ariba, Fieldglass and Concur, and is basically spearheaded by Concur executives. If you look at Ariba, their transactional volume is larger than ebay, Ali Baba and Amazon combined, so that’s a massive transaction volume that we’re already running via these online exchanges. We have very high value network effects that allow us to pull more and more suppliers and buyers into this network without doing a lot of marketing for it, because it’s such a huge network and it provides huge network effects.  

The next one is artificial intelligence enablement. I think this is a very hot topic because we see a lot of opportunities to help and augment, but also hand over some of the more complex work tasks in the industry to AI. We will see a growing number of, let’s say, supporting activities that come basically from AI components. For example, in the business intelligence space, you will not just get a report but you might also get proposals, what to do and how to act, based on what’s in the report that you are viewing. Very interesting, very high-value space that we have there.  

In sports and games, we created a new sports and games industry, I think, a little more than a year ago, and we’ve created massive presence there, which you can see at the soccer World Cup, but also in the NBA and NHL. For example, our SAP HANA platform runs all the player statistics on the NBA website massively fast. In sports and games we are very present in a very short time. Not only in the back end ERP type of applications, but also with fan apps and sports analytics, as you can see on the NBA website.  

For my last commentary, data security. Data security has been a massive investment at SAP over the last four decades, I would say, one of the key value ports of SAP systems to be as secure as possible in parallel to providing massive value to customers.  

Overall we will have a very interesting year in front of us and I’m looking forward to it. And all the best to you.  

Nat Burgess

Thank you, Karl. We’ll now turn to Reese Jones of Singularity University to give us his insights.  

Reese Jones

This is Reese, thanks for having me back. With regard to enmeshed systems, Mark Andreissen has a saying, that software is eating the world. Meaning that everything is becoming partly controlled by software. Andy Grove, who used to run Intel, has a counter saying which is that all good software eventually becomes hardware. The interesting combination there is of course the internet, which is hardware and software, but also a billion people and energy plays a factor with things like batteries losing power at an important moment in a complex decision making process.  

With regard to AI enablement, there’s a saying that AI is what computers can’t do yet. Peter Norvic, who runs AI at Google has a saying that AI is like raisin bread, where bread is the essential valuable thing there and AI is like the raisins that make it a little bit special. Something to consider as AI gets more built into the internet, that things like psychotherapy can be done via text messaging with an entity on the internet, and that may not be a person. This can help relieve some of the pressures that health systems are under with not having enough qualified people to care for patients. That brings up the issue of what happens when AI is going wrong or what is the equivalent of artificial psychiatric disorders and how to deal with that.  

Regarding position intelligence, this is an interesting area with some new tech coming into play. Phones can start doing things like magnetic field mapping and radio frequency mapping, to get better positioning inside buildings, sensing things that are variable from inch to inch in a building and be able to locate things the same way GPS does outdoors. This can improve user experiences indoors. Finally, with security, the general theme is an immune system developing for the internet, which essentially monitors what is normal and what is aberrant from normal. This can be monitoring a person or monitoring a system and can be taking interventions if something is going out of normal. This is very much how an immune system works in a person and can create better response security, and that has its own downside, too.  

So those are four topics, and I look forward to questions, thanks.  

Nat Burgess

Thank you very much, Reese. Let’s turn now to our guest from Microsoft Ventures, Mukund Mohan.  

Mukund Mohan

Hey, guys, this is Mukund. I’m actually at Microsoft as part of the cloud team now. The two biggest things I’ve seen consistently are in the areas of analytics and cloud infrastructure. As mentioned before, these are the two areas, along with mobile, that are big investment areas overall. What I’m seeing consistently across the board, not just at Microsoft, but across the industry, is both in the early stage of the investment cycle, more investments in mobile first companies, or mobile only for consumer. On the B2B side, the two most important trends for analytics are on machine learning and in the area of mixed, augmented, and virtual reality. I’m very excited to see more companies getting formed in the areas of predictive analytics, in the area of being able to help industry specific verticals, to be able to understand what to do with large amounts of data and machines to be able to understand predictive modeling around them.  

The other area is to be able to leverage the use cases for augmented, mixed and virtual reality, the example I’ve seen besides gaming on the production side are a lot of furniture and indoor interior decoration companies using the ability to bring their content and specific materials into the home so a homeowner can see what it looks like before it goes in. So, I continue to see in 2016 the pace of acquisitions will not continue to go down, we do see valuations getting a little more favorable toward the larger companies.  

Aside from those two, the other interesting area that I think will have a lot of attention is that of intelligent applications. That is moving beyond the 1.0 version of SaaS. You had Peter from Salesforce and a few others talk about SaaS applications overall. There are 55 or so companies on the US public market right now that are SaaS, including companies that are fairly recent and the ones that are known as the pioneers in the space. The average valuation in terms of multiples in revenue have fallen pretty sharply, but those remain fairly strong in the private side. As we see both of those valuations converging, we continue to see from the 55 right now at least 50-65 by the end of this year, cumulatively, and we expect to see a lot more in the back office space of SaaS, focusing on medium and small size customers as opposed to those in enterprise alone.  

Thank you.  

Tech Luminary Panel Q&A  

Nat Burgess

Thank you, Mukund. We are going to carry on into Q&A. I just want to let everyone know that we’re at the end of our scheduled hour and briefly mention that we’ll be back with our monthly tech M&A update next month focusing on PE. Record amounts of money have been raised into PE funds, a lot of that will be put to work this year, and we’ll have an elite panel of PE professionals telling us how that’s going to work and helping us prepare. So do join us next week.  

Now I’d like to go back to our panel with some questions that have come in during the presentation.  

The questions are fairly broad, I would ask that our panelists be concise in answering them in the interest of time. The question is, “What do you see as the future of riderless cars? When will they be mainstream and what are the implications for the rest of us?” I’d like to address that to Peter Coffee.  

Peter Coffee

Sure. I think the idea of the fully autonomous vehicle is going to be technically feasible long before we have legal regulatory, social, or insurance frameworks to handle that. On the other hand, I think that the idea of vehicles that do some degree of autonomous breaking, adaptive cruise control, and reduce classic and frequent driver failure modes, I think those are quickly going to become expected to the point that not having those will be considered a high risk from an insurance point of view. I think you’re going to see the autonomy will progress by degrees, but I think it will be quite some time before you can just get in your car and have it take you to your destination.  

Nat Burgess

Thank you, Peter. Jump ball on that question, would any of the panelists like to offer an additional opinion?  

Reese Jones

Anti-lock breaks is the intelligent autonomous feature that is in cars now and certain other aspects of autonomy like staying in a lane will be expected features in cars in the near future.  

Peter Coffee

That’s exactly what I had in mind, I agree completely with those examples.  

Nat Burgess

Thank you, Reese.  

We have another question that just came in, which is, “What do you see is the importance of integration of omnichannel transactions to include chat, voice, visuals, with mobile and other devices?”  

Peter, do you have thoughts on this?  

Peter Coffee

I think I agree with Angela Berendt, formerly of Burberry and now at Apple, who said recently that soon saying omnichannel marketing will sound as silly as “digital camera” because what other kind would it be? If it’s not omnichannel, it won’t be marketing, it’ll be a narrower term like print advertising.  

The customer expects their identity and experience to move across all channels of interaction with a provider of goods or services. I think that expectation is only going to become further cemented as every startup treats that as one of their differentiators, and very soon it won’t be a differentiator anymore.  

Nat Burgess

Interesting.  

Another question just came in, we’d like to get your opinions on it, this relates to Facebook’s revenue. This has taken off with in-feed ads. What do you think of this model and is it going to grow as a source of revenue, will it become the standard, will we see a renaissance in the ad revenue business?  

Peter Coffee

One of the comments I’ve seen is that in a sense, first the web replaced the internet, you didn’t go looking for content at an IP address, you went to a webpage. Then Google replaced that, you asked it to point you to things, now the question is, does Facebook, with its opportunity to integrate collaboration with a trusted advisor and friend network, into your search for products and services, does that subsume what we’ve thought of as “search” where you look for things in your friend feed rather than by a traditional search engine. I think there is abundant indication from various research that people now anticipate that the final decision of whether to engage with a new vendor will be made on the advice of a friend network, whether by Facebook or LinkedIn, so I think curating a community of trusted advice around search is going to become the way people prefer to engage with providers and that would tend to argue that what you have described is a trend Facebook will ride with great success.  

Nat Burgess

Thank you.  

Reese, I’ve got one for you. You were involved early in building out infrastructure and network, a question we’ve all struggled with are the implications of SaaS and cloud on security. If I wanted a million social security numbers, now I can get them with a single hack. Clearly there has been an amazing transformation in the dating ecosystem and that has to have some implications for data security. What are your thoughts on that?  

Reese Jones

Technology has improved, it’s now possible to commit crimes against hundreds of millions in a single action and that has never been possible before. Potentially the security on the internet or for individual systems, will have to move to a locally monitored aberrant behavior type of system where, much like an immune system, it will look at an infection that is local, or something that is behaving out of the ordinary and stopping it because it is not typical. Then maybe later you can look at why it was stopped, but it needs to be stopped in a locally aberrant autonomous way. For example, there is no particular reason a receptionist should be downloading hundreds of profiles at a company.  

Peter Coffee

Not only do I completely agree with that, that noticing unusual behavior is a more robust strategy than trying to anticipate attacks, which no one believes to be sustainable, but the other thing you’ll see is that we’ll use many fewer static authenticators like a credit card number, you can already go online and get a one-time credit card number from your credit company. We at Salesforce are already using a authenticator that changes code every 30 seconds or two-factor authentication on our networks. I get that code off of my Apple watch. It’s not a particular nuisance to have to do that. There is an arms race between the good guys and the bad guys, and making it convenient for the good guys to use the best stuff is probably the bigger challenge now, rather than the technical challenge. So finding behavioral ways, but also there’s an easy way to be vastly more secure than the traditional user name and password scheme, without being as fragile as current biometric schemes can be, I think that is probably a productive front on which to fight that war.  

Nat Burgess

Anomaly detection has been around a long time, but now we have much more data and patterns to track. I think the hard thing in security is that the bad guys do collaborate and the good guys don’t, because they don’t want to disclose what’s gone wrong. With this anomaly detection concept, that is a way for the good guys to collaborate.  

We’re going to close with a question and it’s really on China. We’ve had two questions relating to China. The first is why the transaction volume has been so low, in terms of both outbound capital and M&A transactions within China. The second question is regarding the $15 fitness band out of China competing with FitBit. Their market cap went from $8 billion to $3 billion, there’s suddenly a very low cost alternative out of China competing with them. Where do you see China going this year?  

Let’s start with Reese.  

Reese Jones

One of the tricky things from the internet business point of view is that Google and Facebook don’t offer in China, because to do so they’d have to be compliant with the Chinese government regulations about privacy and censorship and transparency to the China government about the activities of the users. However, Ali Baba and other companies within China that are doing functionally the same thing, but are to a certain extent owned by the Chinese government. China’s internet market is bigger than the US market in terms of users and revenue, so it’s not surprising that the China companies are doing well, but as you guys pointed out, the accounting transparency in China is different and that scares people from investing either directly or in an M&A direction. It’s a complicated situation.  

Nat Burgess

Peter, do you have any thoughts?  

Peter Coffee

Well, my comments on that would be that if you could win the market for personal experience devices on price, the Zune would have destroyed the iPod, which of course is not what happened. A company like FitBit will defy price competition on the hardware by crafting a superior community and individual engagement experience surrounding the data that they collect and their value proposition will be that experience. The Metcalf’s law effect of having the larger community, which makes their data more interesting and makes the community opportunities more engaging, racing to the bottom of the cheapest hardware will not be an effective strategy. The cheaper devices will have their place, but the people who make those devices will not have the profitability that focuses on the experience they are delivering through the hardware instead of making the mistake of thinking of the hardware as the product.  

Nat Burgess

I think I would draw from those two perspectives; first, difficult for offshore companies to justify investing in the China market, given the transparency issues, and challenging for the Chinese companies to displace someone like a FitBit who has built out a compelling community.  

This concludes our annual tech M&A update and forecast for 2016. I would like to sincerely thank our distinguished panelists for joining us and offering their insights. Thank you very much.