ClearBridge Investments, Inc. has sent a letter to the Chairman of the Board of Model N, Inc. (NYSE: MODN). The purpose of the letter is to urge Model N’s Board of Directors to reconsider its recently announced agreement to be acquired by Vista Equity Partners.

The full text of the letter follows.

Jeffrey Bailin and Aram Green ClearBridge Investments, LLC 620 8th Avenue, 48th Floor New York, NY 10018

April 15, 2024

Baljit Dail Model N, Inc. 777 Mariners Island Boulevard, Suite 300 San Mateo, CA 94404

Dear Mr. Dail and Members of the Model N Board of Directors,

We are writing on behalf of several strategies at ClearBridge Investments, a $188 billion global equity manager, to offer our thoughts on the proposed acquisition of Model N by Vista Equity Partners. We own 6.97% of the outstanding common stock of Model N as of Dec. 31, 2023. We believe the proposed acquisition materially undervalues Model N’s outlook as a public company or value to strategic or financial buyers. With the proposed acquisition contingent on a shareholder vote, we intend to carefully consider whether this appropriately values Model N for our own investors.

About ClearBridge Investments

By way of background, ClearBridge is a global long-only equity asset manager and affiliate of Franklin Templeton. The firm had over $188 billion in assets under management as of March 31, 2024. We co-manage several strategies, and seek to be long-term holders of our companies. Our strategies have below-average turnover and targeted holding periods of three to five years.

Exploring Maximizing Value for Model N Shareholders

We have been long-term shareholders of Model N, having first acquired a holding in September 2020. Originally, we were attracted to Model N’s unique competitive positioning, dominating a niche, high-value market selling to a resilient customer base in life sciences and high tech. We were aware the company had embarked on a cloud/SaaS subscription transition, something we have lived through in other software business models, and saw the potential for long-term upside in revenue dollars, long-term growth, and profitability. Our diligence uncovered that Model N’s product offering had limited competitive alternatives in life sciences revenue management software. With increasing regulatory burden, we anticipated there would be expansion module opportunities over time, a fact echoed by numerous management statements on the company’s cross-sell potential. The company has executed well on the SaaS transition, new logo additions, and geographic/product expansions with existing customers, all while meaningfully increasing margins. With the heavy lifting of the model transition largely finished, the company is well-positioned for accelerating performance in the medium term.

Over many years, we have had numerous investments in the software space serving life science customers and have seen a variety of consolidation activities in the space by both strategic players and financial private equity buyers. Moreover, we have historically seen vertical software businesses command relatively high valuations, even as the software valuation paradigm has seen froth come out in recent years. We appreciate that the Board of Directors is balancing the risk of execution as a stand-alone entity, which is inherently uncertain and can be impacted by external factors beyond management’s control, with the certainty of a private equity cash offer. With that said, looking at a variety of private equity deals in software over the last two years, to account for the latest valuation regime, the proposed acquisition carries one of the lowest take-out multiples, and is far below the averages we see of 7-9x NTM EV/Sales. While near-term revenue growth is a little slower at Model N, the company’s targeted double-digit revenue growth and mid-20% EBITDA margin profile, coupled with competitive differentiation serving an attractive customer base, ought to warrant a higher valuation.

We believe the Board of Directors and the company’s advisors should remain open minded to potentially superior offers available from either strategic or financial buyers or Model N shareholders should strongly consider the potential long-term value creation in staying a stand-alone public entity. Continuing to execute on the company’s mid-term targets should offer much higher value for patient shareholders who have endured relative under-performance on a trailing 12-month and trailing 36-month basis.

Thank you for your time and consideration. Please let us know if you would like to discuss any of this further.

Best, Jeffrey Bailin and Aram Green Portfolio Managers

About ClearBridge Investments

With $188 billion in assets under management as of March 31, 2024, ClearBridge Investments is a leading global equity manager committed to delivering long-term results through authentic active management, offering investment solutions that emphasize differentiated, bottom-up stock selection to move clients forward. Owned by Franklin Templeton, ClearBridge operates with investment independence from headquarters in New York and offices in Baltimore, Fort Lauderdale, London, San Mateo, and Sydney.

Lisa Tibbitts (904) 942-4451 lisa.tibbitts@franklintempleton.com

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