M&A and Corporate Finance April 28 th 2016 Trends in the IoT Sector J A M E S T U R I N O jturino@redcapgroup.com +1 212 508 7108
Introduction to Redwood Capital
Introduction to Redwood Global investment banking services for companies across the technology, communications, media, and business service industries Mergers & Acquisitions Corporate Finance Sell Side / Divestitures Growth Stage Capital Buy Side / Strategic Acquisitions Buyout Capital / Private Equity Buyouts Mezzanine and Debt Financing Co-Investment Partnership Mergers of Equals Acquisition Financing / Project Financing Invest between $25m - $150m per deal alongside select Redwood client transactions worldwide Restructuring Valuation Services Focus on Growth Equity, Buyout, and Mezzanine; no Venture Stage Sale / Refinancing of distressed companies Fairness and Solvency Opinions Chapter 363 Asset Sales Financial and Tax Reporting (IRC 409A, ASC Chapter 11 plan / reorganization / sale 718, 805, 350, 360, and 820) Assignment for the Benefit of Creditors Intangible Asset Valuation (ABCs) A P R I L 2 8 T H 2 0 1 6 – J A M E S T U R I N O – R E D W O O D C A P I T A L G R O U P 3
Industry and Sector Focus Strong technology, media and communication (“TMT”) focus across multiple industry Internet & Enterprise Communications verticals and sectors Software / Digital Media Infrastructure SaaS M2M May 2015 IT Security Business Communications Marketing February 2016 Services Services Services Industry recognized Advertising Technology research and sector IT Services Clean Tech Business to September 2014 focused reporting Business Media HCM September 2015 A P R I L 2 8 T H 2 0 1 6 – J A M E S T U R I N O – R E D W O O D C A P I T A L G R O U P 4
International Expertise Globally recognized cross-border M&A and corporate finance expertise N E W Y O R K 8 locations in Europe and North America L O S A N G E L E S L O N D O N 50 professionals P A R I S M U N I C H 75 closed cross-border transactions B E R L I N A M S T E R D A M LD&A Redwood Joint Venture Founded by two leading TMT investment banking firms LD & A Redwood Focus exclusively on cross-border transactions Fully staffed offices across Europe and North America Technology, Media, Telecom Technology, Media, Telecom Deal of the Year Deal of the Year 2014 Top 10 Bout utique ($100mm to $1bn) (up to $100mm) Inve vestment nt Bank nk 7 TH ANNUAL INTERNATIONAL 13 TH ANNUAL of the he Yea Year M&A AWARDS M&A ADVISOR AWARDS 2015 WINNER 2014 WINNER A P R I L 2 8 T H 2 0 1 6 – J A M E S T U R I N O – R E D W O O D C A P I T A L G R O U P 5
Select Transactions Extensive Experience in IoT Technology Has Been Acquired By Has acquired Has sold a majority stake to Has been acquired by Has been acquired by Has acquired Has sold Has been acquired by Field Service Software Division $45 45,0 ,000,0 ,000 $30 30,0 ,000,0 ,000 Janu nuar ary 2016 May 2013 013 March 201 014 January y 2014 014 May 2013 013 April l 2013 013 March 201 013 January y 2013 013 Has been acquired by Has acquired Has merged with Has been acquired by Has Been Acquired By Has acquired Has acquired Has acquired a fully-owned subsidiary of $43 43,7 ,700,0 ,000 February y 2011 011 Sep epte tember er 201 012 August t 2006 006 Sep epte tember er 200 009 Dec ecem ember er 2009 009 March 200 009 Octo tober er 200 008 May 2007 007 A P R I L 2 8 T H 2 0 1 6 – J A M E S T U R I N O – R E D W O O D C A P I T A L G R O U P 6
IoT Market
Internet of Things - Defined Software & Managed Services IoT Applications & Data Analytics The network of physical objects with Professional services embedded technology that communicate and interact with themselves or the external environment Connectivity Communications & Data Storage IoT covers a variety of industries and applications including consumer oriented Device connection & Cloud applications such as home automation, fitness etc. This presentation focuses on Commercial & Industrial IoT* Hardware Data Collection Sensors, chips & bricks in machines – Device management *Referred to as M2M in Redwood sector reports A P R I L 2 8 T H 2 0 1 6 – J A M E S T U R I N O – R E D W O O D C A P I T A L G R O U P 8
IoT Market Trends Connected devices billions 50 50.1 billion connected devices in 2020 40 22% CAGR from 2016 to 2020 30 $6 Trillion will be invested over the next 5 years 20 10 0 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 Sources: Forbes, 2015, EIT Digital, 2015, Business Insider – The IoT Ecosystem Research Report 2016 A P R I L 2 8 T H 2 0 1 6 – J A M E S T U R I N O – R E D W O O D C A P I T A L G R O U P 9
IoT Market Breakdown Potential economic impact of IoT in 2025 ($ billion) Ranges represent low and high estimates - 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 Factories 3,700 Operations and equipment optimization Cities 1,660 Public health and transportation Human 1,590 Health and fitness Retail environments 1,160 Automated checkout Worksites Total potential economic impact of IoT: 930 Operations optimization/ $3.9 to $11.1 trillion per year in 2025 health and safety Outside 850 Logistics and navigation 11% of the world economy in 2025 Vehicles 740 Autonomous vehicles and More than two-thirds of potential IoT condition-based maintenance value associated with Industrial and Home 350 Automation and security Commercial applications Offices Security and energy Source: McKinsey Global Institute, 2015 A P R I L 2 8 T H 2 0 1 6 – J A M E S T U R I N O – R E D W O O D C A P I T A L G R O U P 10
M2M Market Trends
Growth Drivers Measured in months / weeks vs. years Key operational benefits: real time data collection, immediate detection, preventative maintenance, High ROI optimization “By 2025, best -in-class organizations that extensively use IoT technologies in their products and operations will be 10% more profitable ” 1 Increase in mobile network coverage Higher Network Higher bandwidth availability (4/5G) Availability More efficient short range protocols Decrease in infrastructure costs of MEMS, sensors, storage, servers… Lower Hardware Costs Ability to use off the shelf, standardized components Both monitoring and controlling More Sophisticated Trending analytics Applications Artificial Intelligence, drones, robotics 1 Source: Verizon IoT report A P R I L 2 8 T H 2 0 1 6 – J A M E S T U R I N O – R E D W O O D C A P I T A L G R O U P 12
Growth Challenges Adopting open standards – uniform data transmission Interoperability Standard protocols for sharing between IoT systems “Without interoperability, at least 40% of potential benefits cannot be realized” 1 Some IoT applications cannot proceed without regulatory approval (ex: self-driving cars) Public Policy Creation of appropriate regulatory standards in health care Agreements on fair practices for data sharing and use Confidence in security across entire IoT ecosystem Software & Hardware Additional capacity and bandwidth in the cloud Technology Costs of certain sensors still need to drop more $35 billion spent annually on network and data security but relatively little on IoT security IP, Security, Privacy & From hacks of cars and planes to dams to nuclear plants, people have been shown how unsecure Confidentiality connected devices can be A common understanding of ownership rights to data is needed 1 Source: McKinsey report, 2015 A P R I L 2 8 T H 2 0 1 6 – J A M E S T U R I N O – R E D W O O D C A P I T A L G R O U P 13
Business Strategy Overview
Business Models Many of the market leaders started here Hardware Sensor, server and database Primary business infrastructure; integration services Typically verticalized Addressable market Worldwide: $4bn (2018 estimates*) US: $1.3bn One-time sale; project-based Typical revenue model services Gross margin profile Low * Source: ABI Research, Q4 2014 A P R I L 2 8 T H 2 0 1 6 – J A M E S T U R I N O – R E D W O O D C A P I T A L G R O U P 15
Business Models Strong historical growth and strategic interest Hardware Connectivity Sensor, server and database Wired and wireless short and Primary business infrastructure; integration long range communications services Typically verticalized Horizontal Addressable market Worldwide: $4bn Worldwide: $25bn (2018 estimates*) US: $1.3bn US: $6bn One-time sale; project-based Typical revenue model Recurring services services Gross margin profile Low Medium * Source: ABI Research, Q4 2014 A P R I L 2 8 T H 2 0 1 6 – J A M E S T U R I N O – R E D W O O D C A P I T A L G R O U P 16
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