Observations on Key Infrastructure Software Trends

  • 2018 was a strong year for Infrastructure Software with significant interest from strategic acquirers and financial investors alike – IBM’s acquisition of Red Hat became the largest ever enterprise software deal, while KKR’s acquisition of BMC was the largest PE-backed software deal since the recession. The public markets continued to be favorable with over 12 IPOs in 2018.
  • A key trend has been the democratization of software development, allowing developers and business users alike to access APIs, tools, technologies, and create highly rich and relevant apps.
    • On the developer side this has led to widespread adoption of open source technologies and recognition by industry giants like IBM and Microsoft that to access these developers, you need to embrace these technologies.
    • On the business users side this has led to the increasing adoption of low code software development models, business process management, project / collaboration software, and other configurable workflow tools. 
    • Companies that have played on this theme, especially team-based, developer-centric, high velocity sales models, have traded at significant premium to their peers. 
    • Across verticals, this has led developers and users to create innovative cloud and mobile apps that are shifting those vertical ecosystems to online and mobile.
  • Open source, hybrid cloud and security continued to be key themes. While there has been increasing adoption of public cloud, security, compliance, and control concerns have led to continued growth in on-premise and private cloud environments.
  • Legacy infrastructure software companies with strong cash flow characteristics drew interest from both larger private equity funds as well as industrial strategic acquirers looking for software opportunities.

Infrastructure Software Taxonomy

Software Development / DevOps

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Solutions that enable the software development lifecycle, including planning, creating, testing, and deploying software applications and systems

  • Application Lifecycle Management
  • Continuous Integration / Continuous Delivery
  • Version Management
  • Test Management

Select Market Participants

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IT Operations Management

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Solutions that help to manage the provisioning, capacity, performance, and availability of an organization's IT infrastructure

  • Infrastructure / App / Database Performance Monitoring
  • IT GRC and Asset Management
  • Service and Support Management
  • Operations Analytics

Select Market Participants

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Security

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Solutions that protect software and systems against malicious attacks, unauthorized access and resource use, and other external and internal risks

  • Identity and Access Management
  • Network / App / Data Security
  • Advanced Threat Protection
  • SIEM / Security Analysis

Select Market Participants

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Data Management

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Solutions that integrate, cleanse, migrate, and manage data across platforms to produce accurate and consistent information

  • Data Integration
  • Data Quality and Governance
  • Database Management
  • Data Analytics

Select Market Participants

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Cloud Managed Services

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Solutions that manage cloud security, computing, storage, network operations, and application stacks to automate and enhance business operations

  • PaaS / aPaaS / iPaaS
  • Managed Hosting and Applications
  • Managed Security
  • Backup and Disaster Recovery

Select Market Participants

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Collaboration / Communication

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Solutions that enable groups and teams to communicate, share, coordinate, cooperate, and solve problems for the purpose of completing a task

  • Project Portfolio Management
  • Business Process Management
  • Communications PaaS
  • Agile Project Management

Select Market Participants

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Case Study: Wrike

HW’s TMT Group advised Vista Equity Partners on its acquisition of Wrike.

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Wrike is a leading provider of a SaaS-based collaborative work and project management software, designed to connect people across an organization and improve project and workflow efficiency and transparency.

Wrike’s solutions enables teams, departments, and whole organizations to plan, manage, and collaborate on projects and tasks in real-time, enabling users to scale back the use of multiple disparate systems (including multiple Excel workbooks, PowerPoints, status trackers, email, etc.) and consolidate work management activities onto one platform.  Additionally, Wrike’s platform comes with integrations that allow users to extend its solutions to their existing enterprise applications such as G Suite, Slack, Microsoft Office and Adobe.  Its platform can be used for a wide variety of use cases across functions including Project Management, Product Development, Business Operations, Professional Services, and other enterprise teams.

Wrike serves over 17,000 organizations and 2 million users worldwide in 130 countries.

Relevant Sub-Sectors

  • Project Portfolio Management
  • Collaboration Software
  • Business Management
  • Infrastructure Software
  • BPM Software
  • SaaS

 

Select Infrastructure Software M&A Transactions1,2

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Twilio’s Acquisition of SendGrid

  • SendGrid is an email API platform that enables developers to embed email capabilities into their applications. These emails are typically based on user-triggered events such as new sign-ups, password resets, order confirmations, receipts, etc. The Company also provides a marketing campaign offering for marketers to engage with customers in a targeted manner through promotional email. 
  • The Company’s platform sends over 45 billion emails per month enabling enterprises to increase email deliverability, access actionable insight, and scale to meet any volume of email.
  • The acquisition adds SendGrid’s email API to Twilio’s omnichannel communications API (voice, video, SMS, chat etc.), resulting in a combined entity that offers developers a single, best-in-class platform to manage all channels of customer communication.
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Vista Equity Partners’ Acquisition of Apptio

  • Apptio is a pioneer in technology business management software which enables technology leaders within a business to analyze, optimize and plan their IT spend. Functionality includes: Cost Transparency, IT Planning, IT Benchmarking, Business Insights, and Bill of IT.
  • The majority of enterprises today are using Apptio’s offering to manage their cloud spend across hybrid IT environments with assets on-premise and in the cloud. However as the IT function gets increasingly complex with cloud computing, IoT, and other digital initiatives across multiple departments, the Company is uniquely positioned to offer an application designed for IT financial management.
  • Vista has invested in a number of financial management, business process management, and workflow solutions across various end market and departments, and is positioned to help the Company to penetrate the mid-market and expand into other verticals.
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Thoma Bravo’s Acquisition of Imperva

  • Imperva is a market leader in data security, including database, file, and web application security. The Company helps prevent external and internal data security breaches, manage data risk, and meet compliance mandates.
  • The company’s flagship product is the SecureSphere Data Security Suite, and it can protect traditional on-premise data as well as data in private, public, and hybrid cloud computing environments. Products are sold through a channel-driven model with more than 350 partners with internal sales that touch each deal.
  • Thoma Bravo has been the most active private equity investor in security software and Imperva adds to a long list of security portfolio companies with strong market positions, significant growth potential, and potential for business model transitions.
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Cloudera’s Acquisition of Hortonworks

  • Hortonworks and Cloudera are both data management companies helping customers with big data engineering / analytics strategies with a focus on open source Apache Hadoop - used for distributed processing of large data sets across clusters of computers using simple programming models, designed to handle hardware failure by delivering high-availability at the application layer.
  • Cloudera provides proprietary tools on top of Hadoop, for classes of business problems for business managers. Hortonworks manages Hadoop as a product for a subscription fee and sells support for big data technologists, and has higher services revenue.
  • The merger will enable the two companies to compete better with cloud providers (who have their own versions of Hadoop at a lower cost of acquisition and better ability to scale), while at the same time provide more scale, a broader product footprint, and cost synergies.
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IBM’s Pending Acquisition of Red Hat

  • RedHat is the leading provider of enterprise grade open source software with a broad portfolio that includes server OS (Enterprise Linux), middleware (JBoss), PaaS / containers (OpenShift), automation (Ansible), cloud management, storage, and virtualization (OpenStack). 
  • The Company has a strong position in enterprise hybrid and multi-cloud environments, and it benefits from Linux emerging as the preferred OS in the cloud, with organizations looking for open source solutions in their public and private cloud stack that reduce vendor lock in while ensuring enterprise level support and reliability.
  • While IBM trails AWS, Azure, and Google in the public cloud, this acquisition will allow it to become a more prominent player in hybrid and multi-cloud environments while giving it access to a large open source developer community.

Select Sector Spotlight3,4

Low-Code Software Development / Business Process Management (“BPM”)

Market Observations

  • When dealing with software, business users traditionally have had two options – work with off the shelf, one size fits all software or work with the IT team to develop customized solutions
  • However, this has changed with low-code software development tools that empower business users to quickly build web and mobile applications, using visual modeling tools and high level code constructs, and leverage existing logic and data within multiple applications, databases, and reusable components / templates – many of these tools build strength in certain verticals or in particular departments / use cases
  • This empowerment of business users results in richer and more relevant applications, strong alignment with business use cases, and independence from central IT – the low-code software development and BPM market is expected to grow to over $15 billion by 2021

Select Market Participants

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Recent Transactions

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Application Performance Management (“APM”)

Market Observations

  • While APM tools have been around for a while, cloud, mobile, and DevOps have intensified the need for newer APM solutions
  • Demand is driven by explosion of applications, data, workloads, and technologies, including applications that manage every aspect of people’s personal and work lives, newer and open source software development technologies (micro services, containers, etc.), increasing percentage of transactions moving to online and mobile channels
  • Customer experience has never been more important - customers expect anywhere / anytime access to applications and data with little to no latency
  • Organizations have moved or are moving to a DevOps mindset – development and operations need to be continuous, forming a virtuous feedback loop – and APM is central to that

Select Market Participants

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Recent Transactions

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IT GRC / Vendor Risk Management

Market Observations

  • IT GRC / Integrated Risk Management solutions are top of mind for all CIOs
  • Growth is fueled by high profile security breaches, changing regulatory environments across verticals and geographies, increasing online and mobile transactions, access to customer / consumer data, and threats from multiple constituents – employees, customers, vendors, and the proliferation of applications and devices
  • These solutions have tended to be more services heavy but are benefiting from a number of newer vendors that are automating various components
  • Vendor Risk Management is one of those components that poses significant hidden risk and needs to be an important component of IT GRC / Integrated Risk Management offerings

Select Market Participants

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Recent Transactions

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Key Performance Metrics for Recent Infrastructure Software IPOs1

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Infrastructure Software – Trading Comparables Metrics

Valuation1

As of December 31, 2018 ($ in millions)

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Infrastructure Software – Trading Comparables Metrics by Sector

Valuation1

As of December 31, 2018 ($ in millions)

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Security Software – Trading Comparables Metrics by Sector

Valuation1

As of December 31, 2018 ($ in millions)

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Infrastructure Software – Transaction Activity

Select Recent M&A Transactions1,2

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Select HW TMT Transactions

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1. FactSet

2. PitchBook

3. Gartner

4. IDC

 

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