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Tech M&A: Unlocking Key Factors that
Influence Valuation
Presented by Ed Bryant, President and CEO of Sampford Advisors
© 2021 All rights reserved
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© 2021 All rights reserved
Meet the Presenter
● President and CEO of Sampford Advisors, an M&A
advisory firm for Canadian technology companies with
offices in Ottawa, ON and Austin, TX.
● 25 years of experience, including over 21 years in
investment banking with Deutsche Bank, Morgan
Stanley, and Sampford in Hong Kong, Singapore, and
New York, and now Canada.
● Raised in excess of $20 billion in equity and debt capital
and completed over $10 billion in M&A transactions.
Ed Bryant
President & CEO at Sampford Advisors
© 2021 All rights reserved
© 2021 All rights reserved
Tech M&A: Unlocking Key
Factors that Influence Valuation
Presented by Ed Bryant, President and CEO of Sampford Advisors
Tuesday, May 25, 2021
6
• Tech-focused mergers and acquisitions advisory
• Founded in Canada, expanding in the U.S.
• Focused on medium-sized technology clients, with emphasis on software
• 40+ years of investment banking experience
‐ In major financial hubs of NewYork, London,Toronto, Hong Kong and Singapore
Sampford Advisors Overview
7
Leading Mid-Market M&A Advisor to Canadian Tech Companies
4
4
4
4
5
5
6
9
10
19
Canadian Boutique 6
American Boutique 2
Big Four Accounting 1
American Boutique 1
Canadian Boutique 5
Canadian Boutique 4
Canadian Boutique 3
Canadian Boutique 2
Canadian Boutique 1
Sampford Advisors
Technology: 2017 – 21 YTD
1
1
1
2
2
2
2
3
3
11
Canadian Boutique 5
American Boutique 4
American Boutique 3
American Boutique 2
Canadian Boutique 4
Canadian Boutique 3
American Boutique 1
Canadian Boutique 2
Canadian Boutique 1
Sampford Advisors
Technology: 2020 – 21 YTD
Source: PitchBook, all transactions below US$75mm or with
undisclosed values from 1/1/2017 – 2/28/2021
• Since 2017 we
have
dominated
Canadian mid-
market tech
M&A
• Gap has
widened since
the pandemic
8
Past & Current Clients
Recently Completed (Since July 2020) Pending
8
Sales of
technology
companies
16
3 Buyside
technology
mandates
Factors that InfluenceValuation
10
Technology M&A Activity is Increasing
Source: PitchBook, all Canada and US Technology M&A
transactions, 01/01/14 – Present
$148.1
$176.7
$344.6
$210.7
$192.1
$296.2
$340.0
$531.4
2,021
2,272
2,202
2,313
2,527
2,368
2,246 2,558
2014 2015 2016 2017 2018 2019 2020 2021 YTD
Dollars invested ($bn) Annualized # of Transactions
• Technology M&A activity has
increased significantly
• Especially Dollars Invested –
driven by larger transactions
• Number of deals also
increasing after 2 year
decline
Technology M&A Transactions
11
Software has been a big driver
Software as a % of Technology Transactions
Source: PitchBook, all Canada and US Software / SaaS M&A
transactions, 01/01/11 – Present
59.1% 59.2%
59.6%
63.0%
58.7%
63.9%
67.1%
67.6% 67.7%
66.1%
69.0%
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 YTD
• Software is increasingly
driving deal activity, up 10
percentage points in 10 years
• Lots of PE money chasing
software deals
• The growth of larger
software strategics is also
helping
12
Large Deals driving Seller Expectations
Source: PitchBook, all Canada and US Software / SaaS M&A
transactions, 01/01/20 – Present
EV: $27,700mm
EV/Revenue: 33.2x
EV: $5,000mm
EV/Revenue: 10.2x
EV: $1,800mm
EV/Revenue:16.4x
EV: $1,380mm
EV/Revenue: 13.8x
EV: $715mm
EV/Revenue: 14.3x
EV: $16,000mm
EV/Revenue: 11.4x
EV: $2,250mm
EV/Revenue: 16.1x
EV: $1,600mm
EV/Revenue: 9.6x
EV: $1,200mm
EV/Revenue: 12.0x
EV: $555mm
EV/Revenue: 11.1x
13
Technology Multiples vary Significantly by Sector
Revenue and EBITDA M&A Multiples by Sub-
Sector
Source: PitchBook, all Canada and US Technology M&A
transactions, 01/01/19 – Present
• IT Services and Hardware still
trades at a significant
discount to Software and
Semis
• Although multiples in those
sectors are rising
• Software EBITDA multiple is
deceptive as not many data
points
1.5x 1.3x
5.4x
4.2x
10.9x
9.4x
27.0x
14.3x
IT Services Technology Hardware & Equipment Semiconductors & Equipment Software & Internet
TEV/Revenue TEV/EBITDA
14
Despite Headlines, Software Multiples have held Steady
14
Source: PitchBook, all Canada and US Software / SaaS M&A
transactions, 01/01/14 – Present
2.4x
1.9x
1.3x 1.3x
2.0x 1.9x
1.3x
1.8x
3.6x
3.9x
3.2x
2.6x
3.5x 3.4x 3.4x
4.2x
6.0x
5.7x
6.3x
4.4x
6.2x
6.9x
9.0x
9.4x
2014 2015 2016 2017 2018 2019 2020 2021 YTD
25th Percentile Median 75th Percentile
Revenue and EBITDA M&A Multiples by Sub-
Sector
• Not every software company
trades for >10x
• Median multiple has actually
been pretty steady in the mid
3s
• Spread between 25th and 75th
percentile continues to widen
15
What Factors Influence Valuation?
• Size
• % Recurring revenue
• Growth
• Gross Margin profile
• Profitability
• Retention / Churn
• Addressable Market
16
• Size has always been
important in driving
value
Size Is Increasingly Important…
2.5x
3.6x
4.9x
$1 - $10 $10 - $50 $50 - $100
Revenue (US$mm)
Proven product market
fit with growth potential
Source: PitchBook; March 2018 through March 2021
48.5%
discount
17
But so does Recurring Revenue
SaaS Multiples
Software Multiples (Non-SaaS)
2.0x
2.9x
2.6x
3.3x
2.9x
2017 2018 2019 2020 2021 YTD
4.1x
4.7x
5.0x
4.2x
5.4x
2017 2018 2019 2020 2021 YTD
• Recurring revenue is a key focus of buyers these days
18
Examples of Different Deal Values
Deal #1 Deal #2 Deal #3 Deal #4 Deal #5
Revenue $35mm $25mm $5mm $10mm $5mm
YoY Growth 20% 5% 25% 20% (5%)
EBITDA Margin 30% 15% 25% n/a n/a
Recurring Revenue as
a % of Total Revenue 80% 60% 55% 90% 90%
Multiple of Recurring
Revenue 6x 3x 10x 2x 3x
Commentary
Strong EBITDA margins
resulted in elevated
revenue multiple
Strong proprietary
software product but
large mix of services
and resale revenues
Industry tailwinds and
highly strategic
purchaser lifted
multiple
Strong growth but
small addressable
market
Highly strategic fit
resulted in healthy
multiple despite
declining growth
19
Below
Average (#1)
Average (#2) Strong (#3)
World
Class (#4)
Scale
(LTM Revenue)
<$5mm $5 - $10mm $10-$25mm $25mm+
Growth
(LTM Revenue)
<10% 10-25% 25-50% 50%+
Recurring
Revenue (%)
<50% 50-75% 75-90% 90%+
EBITDA
Margin (%)
<10% 10-25% 25-40% 40%+
Monthly
Churn (%)
3%+ 2-3% 1-2% <1%
Market Size
/ TAM
<$500mm $500-$2bn $2bn-$3bn $3bn+
Typical LTM
Revenue Multiple
1.0x – 2.5x 2.5x – 5.0x 5.0x – 10.0x >10.0x
Important Factors for Software Companies
© 2021 All rights reserved
Q&A
Please type your questions into the question pane on the GoToWebinar control panel.
© 2021 All rights reserved
Thank you!
Contact Us
SecureDocs Virtual Data Room
United States: 866 700 7975 ext. 1
International: 001 805 259 1269 ext. 1
info@securedocs.com
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Ed Bryant, Sampford Advisors
Phone: +1 (613) 591-1091 x101
ed.bryant@sampfordadvisors.com
www.sampfordadvisors.com

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Tech M&A Webinar: Unlocking Key Factors that Influence Valuation

  • 1. Tech M&A: Unlocking Key Factors that Influence Valuation Presented by Ed Bryant, President and CEO of Sampford Advisors
  • 2. © 2021 All rights reserved ● This educational event is co-hosted by SecureDocs, a virtual data room for storing and sharing sensitive business documents, and Sampford Advisors, a boutique investment bank focused exclusively on advising clients in the technology sector on Mergers and Acquisitions (M&A). ● Please feel free to ask questions during the webinar by entering them into the GoToWebinar control panel. We will do our best to answer all of them following today’s presentation. ● If you need technical assistance during the webinar please visit http://help.citrix.com/webinar ● Don’t forget to check your inbox following the presentation. We will send you a copy of the recording and slide deck as soon as it is ready. Please feel free to share this information with colleagues. Webinar Logistics
  • 3. © 2021 All rights reserved About SecureDocs Virtual Data Room Located in Santa Barbara, California, SecureDocs is an affordable, easy-to-use virtual data room solution for securely storing and sharing corporate documentation. ● 10 Minute Setup ● Unlimited Users and Documents Included ● 24/7 Support Team ● Flat-fee pricing starting at $250/Month
  • 4. © 2021 All rights reserved Meet the Presenter ● President and CEO of Sampford Advisors, an M&A advisory firm for Canadian technology companies with offices in Ottawa, ON and Austin, TX. ● 25 years of experience, including over 21 years in investment banking with Deutsche Bank, Morgan Stanley, and Sampford in Hong Kong, Singapore, and New York, and now Canada. ● Raised in excess of $20 billion in equity and debt capital and completed over $10 billion in M&A transactions. Ed Bryant President & CEO at Sampford Advisors
  • 5. © 2021 All rights reserved © 2021 All rights reserved Tech M&A: Unlocking Key Factors that Influence Valuation Presented by Ed Bryant, President and CEO of Sampford Advisors Tuesday, May 25, 2021
  • 6. 6 • Tech-focused mergers and acquisitions advisory • Founded in Canada, expanding in the U.S. • Focused on medium-sized technology clients, with emphasis on software • 40+ years of investment banking experience ‐ In major financial hubs of NewYork, London,Toronto, Hong Kong and Singapore Sampford Advisors Overview
  • 7. 7 Leading Mid-Market M&A Advisor to Canadian Tech Companies 4 4 4 4 5 5 6 9 10 19 Canadian Boutique 6 American Boutique 2 Big Four Accounting 1 American Boutique 1 Canadian Boutique 5 Canadian Boutique 4 Canadian Boutique 3 Canadian Boutique 2 Canadian Boutique 1 Sampford Advisors Technology: 2017 – 21 YTD 1 1 1 2 2 2 2 3 3 11 Canadian Boutique 5 American Boutique 4 American Boutique 3 American Boutique 2 Canadian Boutique 4 Canadian Boutique 3 American Boutique 1 Canadian Boutique 2 Canadian Boutique 1 Sampford Advisors Technology: 2020 – 21 YTD Source: PitchBook, all transactions below US$75mm or with undisclosed values from 1/1/2017 – 2/28/2021 • Since 2017 we have dominated Canadian mid- market tech M&A • Gap has widened since the pandemic
  • 8. 8 Past & Current Clients Recently Completed (Since July 2020) Pending 8 Sales of technology companies 16 3 Buyside technology mandates
  • 10. 10 Technology M&A Activity is Increasing Source: PitchBook, all Canada and US Technology M&A transactions, 01/01/14 – Present $148.1 $176.7 $344.6 $210.7 $192.1 $296.2 $340.0 $531.4 2,021 2,272 2,202 2,313 2,527 2,368 2,246 2,558 2014 2015 2016 2017 2018 2019 2020 2021 YTD Dollars invested ($bn) Annualized # of Transactions • Technology M&A activity has increased significantly • Especially Dollars Invested – driven by larger transactions • Number of deals also increasing after 2 year decline Technology M&A Transactions
  • 11. 11 Software has been a big driver Software as a % of Technology Transactions Source: PitchBook, all Canada and US Software / SaaS M&A transactions, 01/01/11 – Present 59.1% 59.2% 59.6% 63.0% 58.7% 63.9% 67.1% 67.6% 67.7% 66.1% 69.0% 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 YTD • Software is increasingly driving deal activity, up 10 percentage points in 10 years • Lots of PE money chasing software deals • The growth of larger software strategics is also helping
  • 12. 12 Large Deals driving Seller Expectations Source: PitchBook, all Canada and US Software / SaaS M&A transactions, 01/01/20 – Present EV: $27,700mm EV/Revenue: 33.2x EV: $5,000mm EV/Revenue: 10.2x EV: $1,800mm EV/Revenue:16.4x EV: $1,380mm EV/Revenue: 13.8x EV: $715mm EV/Revenue: 14.3x EV: $16,000mm EV/Revenue: 11.4x EV: $2,250mm EV/Revenue: 16.1x EV: $1,600mm EV/Revenue: 9.6x EV: $1,200mm EV/Revenue: 12.0x EV: $555mm EV/Revenue: 11.1x
  • 13. 13 Technology Multiples vary Significantly by Sector Revenue and EBITDA M&A Multiples by Sub- Sector Source: PitchBook, all Canada and US Technology M&A transactions, 01/01/19 – Present • IT Services and Hardware still trades at a significant discount to Software and Semis • Although multiples in those sectors are rising • Software EBITDA multiple is deceptive as not many data points 1.5x 1.3x 5.4x 4.2x 10.9x 9.4x 27.0x 14.3x IT Services Technology Hardware & Equipment Semiconductors & Equipment Software & Internet TEV/Revenue TEV/EBITDA
  • 14. 14 Despite Headlines, Software Multiples have held Steady 14 Source: PitchBook, all Canada and US Software / SaaS M&A transactions, 01/01/14 – Present 2.4x 1.9x 1.3x 1.3x 2.0x 1.9x 1.3x 1.8x 3.6x 3.9x 3.2x 2.6x 3.5x 3.4x 3.4x 4.2x 6.0x 5.7x 6.3x 4.4x 6.2x 6.9x 9.0x 9.4x 2014 2015 2016 2017 2018 2019 2020 2021 YTD 25th Percentile Median 75th Percentile Revenue and EBITDA M&A Multiples by Sub- Sector • Not every software company trades for >10x • Median multiple has actually been pretty steady in the mid 3s • Spread between 25th and 75th percentile continues to widen
  • 15. 15 What Factors Influence Valuation? • Size • % Recurring revenue • Growth • Gross Margin profile • Profitability • Retention / Churn • Addressable Market
  • 16. 16 • Size has always been important in driving value Size Is Increasingly Important… 2.5x 3.6x 4.9x $1 - $10 $10 - $50 $50 - $100 Revenue (US$mm) Proven product market fit with growth potential Source: PitchBook; March 2018 through March 2021 48.5% discount
  • 17. 17 But so does Recurring Revenue SaaS Multiples Software Multiples (Non-SaaS) 2.0x 2.9x 2.6x 3.3x 2.9x 2017 2018 2019 2020 2021 YTD 4.1x 4.7x 5.0x 4.2x 5.4x 2017 2018 2019 2020 2021 YTD • Recurring revenue is a key focus of buyers these days
  • 18. 18 Examples of Different Deal Values Deal #1 Deal #2 Deal #3 Deal #4 Deal #5 Revenue $35mm $25mm $5mm $10mm $5mm YoY Growth 20% 5% 25% 20% (5%) EBITDA Margin 30% 15% 25% n/a n/a Recurring Revenue as a % of Total Revenue 80% 60% 55% 90% 90% Multiple of Recurring Revenue 6x 3x 10x 2x 3x Commentary Strong EBITDA margins resulted in elevated revenue multiple Strong proprietary software product but large mix of services and resale revenues Industry tailwinds and highly strategic purchaser lifted multiple Strong growth but small addressable market Highly strategic fit resulted in healthy multiple despite declining growth
  • 19. 19 Below Average (#1) Average (#2) Strong (#3) World Class (#4) Scale (LTM Revenue) <$5mm $5 - $10mm $10-$25mm $25mm+ Growth (LTM Revenue) <10% 10-25% 25-50% 50%+ Recurring Revenue (%) <50% 50-75% 75-90% 90%+ EBITDA Margin (%) <10% 10-25% 25-40% 40%+ Monthly Churn (%) 3%+ 2-3% 1-2% <1% Market Size / TAM <$500mm $500-$2bn $2bn-$3bn $3bn+ Typical LTM Revenue Multiple 1.0x – 2.5x 2.5x – 5.0x 5.0x – 10.0x >10.0x Important Factors for Software Companies
  • 20. © 2021 All rights reserved Q&A Please type your questions into the question pane on the GoToWebinar control panel.
  • 21. © 2021 All rights reserved Thank you! Contact Us SecureDocs Virtual Data Room United States: 866 700 7975 ext. 1 International: 001 805 259 1269 ext. 1 info@securedocs.com www.securedocs.com Ed Bryant, Sampford Advisors Phone: +1 (613) 591-1091 x101 ed.bryant@sampfordadvisors.com www.sampfordadvisors.com