Todd Wilson October 23 2019 Tech San Diego Growth Conference DRAFT CONFIDENTIAL BofA firm update Whats happening in todays capital markets Whats happening in todays technology capital ID: 1028799
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1. Tech San DiegoGrowth ConferenceTodd WilsonOctober 23, 2019Tech San DiegoGrowth ConferenceDRAFTCONFIDENTIAL
2. BofA firm updateWhat’s happening in today’s capital markets?What’s happening in today’s technology capital markets? What are investors/buyers looking for in today’s market?1Lightning Presentation
3. Emerging Growth & Regional CoverageIndustry trends and intelligenceM&A ideas and deal-flowSector-specific nuancesRegionally-Oriented Senior Bankers Delivering Locally Focused Coverage…Equity Capital MarketsCommercial and Business BankingPrivate Banking, GWIMDebt Finance (Leveraged Finance, Debt Capital Markets)Mergers & AcquisitionsEmerging Growth & Regional CoverageConsumer & RetailGlobalIndustrialsReal Estate, Gaming & LodgingEnergy & UtilitiesFinancial InstitutionsHealthcareTechnologyFinancial Sponsors…Close Coordination with Global Sector Specialists……With Dedicated Product CapabilitiesClose partnership with Global Commercial Bank, Business Bank, Private Bank and Global Wealth and Investment Management colleaguesLocal coverage benefits from higher touch, higher velocity of interactionLocal Attention and Focus while Leveraging Sector, Product and International Capabilities of the Global BofA Platform2
4. Value Proposition for ClientsValue Proposition for Clients3BoutiqueFirmsOther“Bulge Bracket” FirmsDedicated Middle Market Professionalsüü“Inthe-Market” KnowledgeüüGlobal Access to “A list” buyersüüSenior Level AttentionüüIntegrated Financing CapabilitiesüüInvestment Banking, Commercial and Business Banking, GWIM, Private Bankü
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7. Current Market EnvironmentWhat’s Happening in today’sCapital Markets?
8. Markets up 19% YTD Led by Tech, Amidst Solid Macro BackdropMarkets up YTD Led by Tech, Solid Macro BackdropSeasonally Adjusted US Unemployment Rate3.5%Consumer Confidence Remains Resilient96.0University of Michigan Consumer Sentiment Index Recent Volatility But Markets Still at All Time Highs Lowest Reported in 50 years____________________Source: Bloomberg, BofA Merrill Lynch Global Economics Research as of October 17, 2019 Economy Operating Near Full Employment7S&P TECH30.5%NASDAQ21.9%S&P 19.1%VIX 14.3Indexed Price
9. Resilient IPO Market Despite Market Concerns9____________________Sources: Dealogic and Factset as of September 6, 2019. Includes SEC registered IPOs with a base deal value greater than or equal to $50mm. Excludes MLPs, SPACs, REITs, BDCs, and YieldCos. Recent IPOs PricedIPO Spotlight $240,625,000Initial Public OfferingMay 1, 2019Priced $5 above the initial filing range of $19 - $21Finished more than 30x oversubscribed based on indications of interestOffer / 1-Day: +163.0%$240,625,000Initial Public OfferingMay 1, 2019BofAML Joint Bookrunner$8,100,000,000Initial Public OfferingMay 9, 2019BofAML lead Book-running manager$345,000,000Initial Public OfferingJune 27, 2019Priced $1 above the high end of the initial filing range of $17 - $19The transaction finished over 23x oversubscribedAchieved an outstanding 1x1 hit rate of over 90%Wanda Sports GroupAboveIn RangeBelowVolume ($bn): IPO Activity Has Accelerated…With Pricing Reflecting Investor Appetite…IPO Offer / 1 MonthYearly IPO IssuancePricings: Last 4 Years$33.5$18.4$47.1$35.02019 Projected:1232019 Projected:$51.3bn…As Does the Supportive Aftermarket Performance InMode Ltd. Resilient IPO Market Despite Market Concerns
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12. San Diego M&A ActivityLast Twelve MonthsSan Diego M&A Activity LTMMergers & AcquisitionsVery active market125+ M&A transactions in the first half of 2019Over the LTM, technology and healthcare transactions accounted for over 50% of deal volumeApproximately 28% technology, 23% healthcare, and 14% industiralsPrivate Capital RaisedSan Diego-based companies also raised over $500M in private capital 2019 YTD San Diego Industry Transactions Mix (Last Twelve Months)28%23%14%14%3%7%4%2%4%Information TechnologyHealth CareIndustrialsConsumer DiscretionaryConsumer StaplesFinancialsUtilitiesMaterialsEnergyCommunication Services12
13. Technology Capital MarketsWhat’s Happening inTechnology Capital Markets?
14. Markets up 19% YTD Led by Tech, Amidst Solid Macro BackdropFund Flows Continue for Technology Sector____________________Source: Bloomberg, BofA Merrill Lynch Global Economics Research as of October 17, 2019 8$2.1bn Tech Fund FlowsCumulative ($bn)
15. The Tech IPO Landscape Has Shifted14Record IPO Volume in 2019 Driven by a Few Key Deals…The Tech IPO Landscape Has Shifted___________________Source: Dealogic, Bloomberg as of October 11, 2019. Includes SEC registered Technology IPOs with a base deal value greater than or equal to $50mm. Common Stock Volume ($bn)ADR Volume ($bn)2019YTD201820172016SoftwareHardwareInternetServicesNetworking Issuance by Subsector
16. Recent Aftermarket Performance Has Been Mixed15Solid Year For Tech IPOs____________________Source: Dealogic, Factset as of October 17, 2019. Includes SEC registered Technology IPOs with a base deal value greater than or equal to $50mm. Excludes ADRs.(1) EV / Revenue only.2019 YTD US Tech IPOs(1)(1)(1)(1)
17. Potential US Technology IPO PipelinePotential US Technology IPO Pipeline16Artificial IntelligenceFinTechSecurityE-CommerceCloudAutoTechFoodTechGaming / MediaMobilityPropTechGuaziXiaohongshuKuaishou
18. Technology M&A Overview17____________________Note: YTD statistics as of 9/30/2019.Source: Dealogic Analytics, CB Insights and Thomson Reuters.M&A volume for each year. Excludes carve-outs, spinoffs, splitoffs, recaps, repurchases and withdrawn deals. Represents announced technology M&A transactions with deal values over $100mn and acquisition stakes greater than or equal to 50%. Excludes carve-outs, spinoffs, splitoffs, recaps, repurchases and withdrawn deals. Technology M&A OverviewTransaction Value ($bn)# of DealsGlobal Tech M&A Volume(1)(2)AmericasGlobal # of DealsEMEAAsia Pac29%
19. Non-Tech Buyers Increasingly Interested in Technology M&A18Non-Tech Buyers Increasingly Interested in Technology M&A____________________Source: Dealogic, company websites and public filings.Response per Deloitte 2018 M&A report.IBM / Weather Company included as example of a technology company acquiring a significant non-tech asset, based on previous market perception of the Weather Company.Aveva is to merge with the software arm of Schneider Electric, creating a combined company worth ~£3bn.SoftBank / OSIsoft transaction was a significant minority investment of undisclosed size.($5,200mm)($930mm)($4,460mm)(3)($3,880mm)(~$900mm)($4,562mm)($2,383mm)(~$3,000mm)(~$1,000mm)($1,430mm)($970mm)($1,700mm)($2,800mm)($2,000mm)(2)($710mm)($890mm)($915mm)($570mm)($495mm)(4)($830mm)($1,000mm)($510mm)($550mm)($1,100mm)Technology acquisition is the new #1 driver of M&A pursuits(1)($3,911mm)(~$1,000mm)($200mm)($20,779mm)201320142015201620172018($817mm)($550mm)($383mm)($2,600mm)($1,200mm)($1,800mm)($750mm)($310mm)($1,900mm)
20. Private Equity Market Environment19Private Equity Market – Technology Sector_______________Note: Dollars in millions. As of September 30, 2019.(1) Source: S&P LBO Report. Data is for transactions over $50mm of EBITDA. Sponsors Paying Higher Valuations and Putting in More Equity(3)Avg. EV / EBITDA Mult. (1)
21. Key ThemesWhat Does All of this Mean for Technology Companies?
22. The Rise of Private Capital MarketsU.S. Private Capital Markets Approaching Size of Public Capital Markets (1) The Rise of Private Capital Markets____________________Pitchbook, Dealogic as of September 30, 2019. Public SEC Registered Primary Equity Raised through IPO, Follow-on, and Blocks versus Private Market Equity.Proceeds (US $bn)Entry of the Crossover InvestorSoftBank Vision Fund 1 and the rise of mega funds$50$73$87$79$86$117$132= Primary Private Capital Raised ($bn)Expansion of Special Situation Funds (pre-IPO Convertible Structures)Entry of equity/credit facilities providing capital intensive private companies alternative source of capital75%Total Primary Equity Raised Continues to Grow, along with Private Market Share52%25%48%Median Private Deal Size ($mm)$132$14221
23. Expanding Pool of Investors from Mutual Funds to Increasing Number of Growth Equity Firms22Expanding Pool of Investors from Mutual Funds to Increasing Number of Growth Equity Firms“$2tn of private capital dry powder available to be deployed globally with over 50% targeted towards North America” - Preqin2021Today2014
24. The Number of Large Companies Raising Capital Privately Continues to Grow…23The Number of Large Companies Raising Capital Privately Continues to Grow…9 total unicorns in U.S.Private Capital Snapshot - 2008Private Capital Snapshot - Today$25.7bn combined equity value3 new unicorns created1 unicorn exit189 total unicorns in U.S.$581.9bn combined equity value41 new unicorns created15 unicorn exitsHistorical Growth of U.S. Private Companies with Equity Value >$1bn____________________Source: Pitchbook as of June 30, 2019.
25. Flywheel Transforming the Tech Landscape24What are Investors and Buyers Looking For?Total Addressable MarketBest in Class Unit EconomicsVisionaryManagementCompetitive MoatDurable GrowthStructural End MarketsAbility to enter new markets and grow with TAM1Better unit economics = increased efficiencyleads to strong margins and long-term profitability2Resilient to downturns and recessionary cycles 3Visionary management team with a track record of innovation4Demonstrated barriers to entry are crucial to maintaining growth and long term market share5Sustainable growth is the line in the sand between the haves and have-nots6Disrupting the Digital ExperienceFlywheel of Success
26. What Does this Mean for Technology Execs?Key Observations The markets are open…substantial public and private capital availableIPO market is open for high quality middle market companiesM&A highly active for both buyers and sellersInterested parties should capitalize on current conditionsFinancial sponsors remain extremely active as both buyers and sellersPre-IPO Equity Capital Raises Can Be An Attractive Option25
27. Key Themestodd.d.wilson@bofa.com619-515-5649
28. Key ThemesAppendix
29. Technology M&A Overview Lack of organic growth leading to strategics pursuing scarce assets growing at scale Large private equity entries/exits, especially in software Non-tech acquirers aggressively pursuing technology investments High levels of dry powder / strategic cash balances28____________________Note: YTD statistics as of 9/30/2019.Source: Dealogic Analytics, CB Insights and Thomson Reuters.M&A volume for each year. Excludes carve-outs, spinoffs, splitoffs, recaps, repurchases and withdrawn deals. Represents announced technology M&A transactions with deal values over $100mn and acquisition stakes greater than or equal to 50%. Excludes carve-outs, spinoffs, splitoffs, recaps, repurchases and withdrawn deals. Technology M&A Themes1234//////////
30. Software Stocks’ Performance and Valuations29Software Stocks’ Performance and Valuations____________________Source: FactSet as of October 11, 2019.Note: Traditional Software comprises (71 companies), SaaS (70 companies), Applications (76 companies), Infrastructure software (37 companies), Traditional Big Data (72 companies) Emerging Big Data (10 companies - AYX, CLDR, DATA, MDB, SPLK, TLND, VRNS, ESTC, DOMO, PLAN), Security (26 companies), 2017 IPOs (10 companies, excluding Mulesoft) and 2018 IPOs (19 companies).Software mean based on 135 companies in software universe.Software Valuations – NTM EV/Revenue1-Yr Software Stocks’ Performance(7%)(8%)(5%)(9%)(11%)(3%)(14%)YoY IncreaseTraditionalSoftwareSaaSSecurityTraditionalBig DataApplicationsEmergingBig DataInfrastructure2017Software IPOs2018Software IPOs(10%)(10%) Software Mean (1):NASDAQ:10% 1%Software Mean (1):6.56x
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32. Technology M&A Premiums31Technology M&A PremiumsAverage PremiumNASDAQ IndexPremiums average ~25%2004 – 2007Premiums ~35-50%2008 – 2013________________Source: FactSet and Dealogic Analytics.Note: Includes $100mn+ acquisitions of public companies in the technology sector. Excludes withdrawn transactions, selected outliers and MOE transactions. 2009 excludes RIM/Certicom, 2010 excludes HP/3Par, 2012 excludes Diodes/BCD, Softbank/eAccess, Informatica/Heiler Software, Verizon/Hughes Telematics, Semtech/Gennum, 2013 excludes Fairfax/Blackberry, 2014 excludes RF Micro Devices/TriQuint Semiconductor, Avago/PLX Technology, Cypress Semiconductor/Spansion, 2015 excludes Knowles/Audience, Vector/Saba Software, MediaTek/Richtek , Ericsson/Envivio, ComScore/Rentrak, Montage Technology/Pericom, TDK Corporation/Hutchinson and ON Semiconductor/Fairchild, 2016 excludes IHS/Markit, Gannett/ReachLocal and Verizon/Yahoo, 2017 excludes Integrated Device/GigPeak and 2018 excludes Qualcomm/NXP. ModeratingPremiums2014 – 2019YTD9/30/2019
33. …with Valuations and Outperformance of Public Markets Increasing32Median Valuation Increase from Prior Round of Financing -- U.S. UnicornsDirection of Price Changes from Prior Round of Financing -- U.S. UnicornsMedian Russell 2000 Growth Index versus Median Series D (or Later) Equity ReturnsMedian Pre-money Equity Valuation ($mm) For Series C and & D+ Rounds…with Valuations and Outperformance of Public Markets Increasing+304% Increase in Pre-Money Valuation for Series C Rounds From 2008 to 2018+523% Increase in Pre-Money Valuation for Series D+ Rounds From 2008 to 2018$51.4m$320.0m$28.9m$117.0mValuation (US $mm)____________________Source: Pitchbook as of June 30, 2019 and Fenwick & West as of June 30, 2019.Return Indexed to 100201% Aggregate Return 2016 – Present in Private Market from Series D Investments Onward 38% Aggregate Return 2016 - Present in Russell 2000 Growth IndexAre high returns attracting capital or is the large amount of capital driving returns?Strong private market dynamicsStrong private market dynamics58% Increase from Previous Round86% Of All Rounds Were Higher Valuation Than Previous RaiseCompany Friendly Terms and StructureHigher Valuations Outperformance of Public Equity MarketsThough private markets are open, and investors are still amenable to company friendly terms, the recent introduction of volatility to the market has made investors much more selective in opportunities they choose to pursue