Vertical/SMB SoftwareRobust investment and M&A activity is driving innovation and transformation in the Vertical/SMB Tech marketplace.

In this sector update, we examine these trends and explore in detail the Professional Services Tech vertical.

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Managing Director & Co-Head of Technology25 years of investment banking experience

Managing Director & Co-Head of Technology24 years of investment banking experience

Managing Director20 years of investment banking experience

▪ Prior Firms: JMP Securities, Robertson Stephens, RBC Capital Markets, and AGC Partners

▪ Education: BS in Finance from Lehigh University, MBA from New York University

▪ Prior Firms: JP Morgan, Robertson Stephens, SVB, Rutberg & Company

▪ Education: BS in Business, Georgetown University; Master’s in Public Policy from Harvard University

▪ Prior Firms: Piper Jaffray, Jefferies, BMO Capital Markets, Merrill Lynch

▪ Education: BBA with Honors from UMass - Amherst, MBA from UCLA Anderson School of Management

Leading M&A Advisory Platform For The Global Media, Information, Marketing, Software & Tech-Enabled Services Sectors

➢ Advising founders, entrepreneurs, private equity and venture capital firms, and global corporations

➢ Advise on M&A, growth equity and corporate divestiture transactions➢ More than 60 professionals across New York, Boston, London and Sydney➢ Over 700 completed transactions➢ Track record of surpassing client expectations

Dedicated Software And Technology Team With Deep Sector Expertise

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The SMB marketplace is often overlooked as a technology business opportunity due to its extreme fragmentation and the modest size of businesses comprising the category.

And yet, the size of the market is massive in terms of the number of entities, employees and aggregate revenue, as well as the underlying capacity for IT spend.

The idea of selling technology to the SMB market is not new, by any means. Think Dynamics and NetSuite.

What is new is the viability of selling vertical technology solutions to SMB firms (including smaller firms of 100 employees, or less).

Early efforts to develop vertical software solutions for SMBs often failed for predictable reasons; unsophisticated buyers and users; difficulty of implementation; and one-size-fits-all functionality, all resulting in low usage and high churn.

The beauty of the SMB marketplace is that the sheer number of underlying firms in any given category (professional, community, etc.) is sufficiently large to justify the development of now cost-effective Vertical/SMB applications.

In this report we’ll take a summary look at:

➢ Composition of the Vertical/SMB marketplace➢ Specialized features of Vertical/SMB software required to address SMB needs ➢ Trends driving SMB technology adoption, with a focus on the Professional Services vertical➢ M&A activity and environment for Vertical/SMB software

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Mid-Market100-1,000 Employees

100,000 firms

Small<100 Employees6,300,000 firms

Upper Mid-Market

1,000-2,500 Employees9,000 firms

Sources: SMB Group estimates, U.S. Census Bureau

Massive Opportunity For Vertical/SMB Software based on Market Size and Accelerating Technology Adoption

➢ 6.4 million firms

➢ 113 million employees

➢ $2.5 trillion revenue (app. 12% of US GDP)

➢ $250+ billion in capacity for IT/technology spend

➢ SMB IT/Technology TAM includes spending on software, hardware and 3rd party services, plus internal IT staff

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Specialized Requirements of

Vertical/SMB Software

Integrated business management, digital marketing and workflow solutions

User-friendly with a consistent, intuitive interface for all team members; “app like”

Must work right “out of the box”, given lack of IT resources; no implementation

Needs to be highly scalable in order to service thousands of individual users

Auto RepairChild/Elder CareConstructionHealth & WellnessHome Services

Events/TicketingLocal GovernmentNonprofitRecreation & LeisureYouth Sports

ConsultingDental & MedicalInsuranceLegal/AccountingReal Estate

Auto DealersGroceryLocal RetailPharmaciesRestaurants

SMB Software Is Designed To Meet The Specialized Needs Of Small Business Users

Myriad SMB Categories With Sizable, Stand-Alone Vertical Software Opportunities

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➢ 170,000 SMB legal practices➢ Legal Operations Software

Market: ~$3.6bn (2027)

➢ 111,000 SMB consulting practices

➢ Professional Services Automation (PSA) Software Market: ~$16bn (2025)

➢ 36,500 independent insurance agencies

➢ Global Insurance Agency Software Market Size: ~$3b (2028)

Sources: U.S. Small Business Administration, Grand View Research, Zion Market Research, Independent Insurance Agents and Brokers of America, Technavio

Time = Money For Service Providers

Manage Client Relationships

Acquire Customers

Streamline Workflows & Collaboration

App-like experience for employees

SMB professional services marketplace is an especially fertile opportunity based on:➢ Sizable number of firms ➢ Fuller scope of business technology needs➢ Higher income/employee as a proxy for technology budget

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• Affordability, mobility and ease of use• Speedy deployment • Integration with existing consumer productivity tools (IOS, Outlook, PayPal, etc.)

Cloud, Mobile and SaaS Technologies

Deliver Vastly Improved Experience

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• Millennial staff more comfortable with digital applications & subscription services• Millennial clients more receptive to digital/mobile engagement with providers • Growing reliance on remote workers and freelancers drives heightened need for

employee communication and collaboration tools

Generational and Workforce Shifts

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• Sizable end markets from employment and payroll/income perspective• Providers’ skills and expertise are highly valuable• Greater sophistication of professional services technology buyers and users

Strong Demand For Time Saving Business

Management Applications

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• Leverage website, search and social media for marketing and customer acquisition • Customer convenience and retention tools: scheduling, invoicing, payments, etc. • Online reputation management, ratings and reviews

Hyper-Competitive Markets Drive Demand

For Practice Building Tools

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8

PE/G

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Plat

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Com

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Consulting Legal Insurance Agencies

($ in billions)

✓ Equity markets trading at near historic highs; strong consumer confidence given favorable macro-economic environment

✓ Active M&A environment driven by record amounts of corporate cash and private equity dry powder

✓ Limited supply of quality M&A targets, especially platforms

U.S. GDP Growth

(Q2 2019)2.1%

Total US Corporate

Cash$2 Trillion

Total US PE Dry Powder

$2 Trillion

JEGI | CLARITY Perspective ~ Strong M&A environment expected to continue in the near and medium term

U.S U3 Rate

(Q2 2019)3.7%

$2.5

$2.8

$1.9 $5

.1

$9.4

$7.3

$9.0

$12.

4

$17.

4

$6.7

5

185 202 216255

312

393

474546 574

$6.8

9

($ in billions)

9Sources: CapIQ, Bureau of Economic Analysis, Bain Capital, Pitchbook, Prequin

197323

$148$194

$151$180

$338

$441

$360

$241

$443

$205 $195

Vertical/SMB Software Outperforms Broader Markets

100%

120%

140%

160%

180%

200%

220%

Aug-16 Feb-17 Aug-17 Feb-18 Aug-18 Feb-19 Aug-19

JEGI Vertical Software Index S&P 500 Nasdaq Dow Jones

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Nonprofit Insurance Consulting Education Arts & Culture

Agricultural DataEvents Healthcare Grocery CommerceCollaboration

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BOSTONOne Liberty SquareBoston, MA 02109+1 617 294 6555

LONDON90 Long AcreLondon, WC2E 9RA+44 20 3402 4900

NEW YORK150 East 52nd Street, 18th Floor New York, NY 10022+1 212 754 0710

SYDNEY100 Barangaroo AvenueSydney NSW 2000+61 2 8046 6840

The information in this presentation reflects The Jordan, Edmiston Group, Inc. (JEGI) and CLARITY Capital Partners Ltd. (CLARITY) (jointly JEGI | CLARITY) independentviews on prevailing M&A market conditions as of this date, all of which are subject to change. In preparing this presentation, JEGI | CLARITY has relied upon andassumed, without independent verification, the accuracy of all information that was provided to or reviewed in relation to the marketplace. This presentation has beenprepared exclusively for internal use and does not carry any right of publication or disclosure to any other party. As such, it may not be used for any other purposewithout the prior written consent of JEGI | CLARITY.