The Takeaway: Tara Carter on M&A in the B2B Data and Analytics Sector
How have data and analytics companies fared recently?
The highest quality B2B data and analytics assets have continued to show real resilience. Many of the companies we work with offer solutions that are mission-critical. For example, they provide timely and actionable data or insights that inform trading, purchasing or capital deployment decisions, or data and workflow-tools to enable an organisation to track, manage and mitigate risks ranging from financial risks/exposures, to Environmental Health and Safety (EHS) or ESG risks.
While markets have been turbulent, we’re seeing a continued adoption of best-in-class data and software. Often volatility drives adoption and makes the use-case and ROI for data and analytics even more apparent - ultimately these insights facilitate better business-critical decisions, meaning these solutions are ‘must-have’ rather than ‘nice-to-have’.
So how has this translated into deal activity?
Data and analytics firms, or information services businesses in general, are more predictable and reliable in terms of revenues and cash flow than other parts of the technology market, thanks to their commercial model of annual subscriptions, paid upfront in advance with exceptionally high renewal rates, and strong operational gearing. When there is economic uncertainty, it is assets with these financial characteristics that continue to attract investors, as simply put, they continue to exhibit resilience and strong KPIs when everything else is hard to predict.
Last year, there was a smaller pool of high quality assets of scale coming to market, but the ones that did attracted a huge amount of attention – a “flight to quality”. We continue to see standout data and analytics companies significantly outperform other parts of the market from both a growth, profitability and returns perspective, hence the high watermark valuations. Despite the tougher backdrop, we have worked on some incredibly competitive processes over the last 12 months.
What is your look-ahead for the D&A sector over the next 12 months?
We expect the market to be somewhat muted throughout the first half of the year, but the highest quality assets that tick all the right boxes for buyers will continue to demand premium valuations whenever they come to market.
We have seen large corporates undergo massive consolidation programmes or pursuing divestment or focusing strategies. The last couple of years however have demonstrated that when the opportunity is right, corporates are still willing to compete and pay a premium valuation for a strategically important asset. They just need to have unwavering conviction and internal alignment when identifying these opportunities.
Private equity has massively influenced M&A activity over the last decade, but we are currently in a more difficult fundraising period than we have seen in recent years. There are lots of fantastic assets that are owned by private equity where there is an opportunity to continue to scale and create value by investing in technology, product portfolios, people and go-to-market capabilities. We expect that private equity firms will be more likely to hold assets for a little longer if that ensures the business performance and KPIs are top quartile before seeking an exit. Equally, because there is a scarcity of high quality assets, we expect the trend of selling shareholders rolling over a proportion of their proceeds into the next deal to continue.
What are the key drivers of growth in your sector?
Digitisation and continued advances in technology. I don’t think people understand how many industries still use antiquated, analogue systems, or even digital versions of analogue processes, to obtain, process and store data, or make business-critical decisions.
Timely, reliable and actionable data and insights enable companies to make better decisions. That can be anything from a short-term trading call, all the way through to a long-term strategic investment decision. It allows visibility across any organisation, from an SME to a multinational, and this is only going to increase over time.
We’re already seeing the growing need for ESG reporting being a huge growth driver in the sector. ESG is an abstract concept covering many different areas, which makes it hard to measure and even harder to regulate. There is currently no standard across industries or jurisdictions, but as this changes, there is going to be a need for technology solutions to help provide clarity both internally in an organisation, and to facilitate accurate reporting to external stakeholders.
So, what's The Takeaway?
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Data and analytics companies facilitate better business-critical decisions, meaning these solutions are a ‘must-have’ rather than a ‘nice-to-have’
Tara Carter
Managing Director