According to the latest figures from Experian, mergers and acquisitions in the UK market during 2015 rose to the highest level since 2007, surpassing £440bn.
Interestingly, investment into UK companies rose by 14.7% year on year. While this points to increased confidence in the UK economy, what does it mean for companies which operate within consumer direct marketing?
Traditionally, there are number of key factors which may affect the valuation of any business, including historical and projected profit, cashflow and costs; the state of the economy; the value of competitor companies, the strength of customer relationships; and, finally, reputation and brand name.
But there are now two additional factors that investors will need to be satisfied with when eyeing a potential target: provenance of data and the proximity and uniqueness over intellectual property.
Provenance of data
This factor is now so significant, that without a data business being able to readily demonstrate a clear chain of consumer consent, investors would be likely to run for the hills and leave the business pretty much worthless.
Furthermore, such evidence of explicit consumer consent needs to extend across specific channels, selection variables, and transcend Information Commissioner’s Office (ICO) regulations and applicable data protection law.
Businesses that can show evidence of a robust and accurate chain of provenance will fair well in the due diligence process. However, those businesses that can additionally demonstrate a clear relationship with their customers will feature much higher in the selection process for investment compared with those companies that operate along the so-called ‘data chain’ (the name given to the process of data being passed from one company to another).
Proximity and uniqueness over intellectual property
Many data businesses exist today without ever actually collecting any data themselves, often citing spurious intellectual property of customer segmentation, modelling, enhancement etc as justification of their existence and importance to the marketing community.
However, these businesses merely perpetuate and elongate the data chain. Companies that operate right at the point of consumer data collection are more likely to be attractive to investors. It is this proximity to the specific consent gained from consumers that mitigates risk for investors and advertisers alike.
The recent Optical Express ruling is a case in point, where the company overly relied on its supplier to prove specific consent. The ICO did not agree and handed the company an eye-watering fine (pun intended). This highlights that advertisers can no longer rely on dubious middle-men data suppliers, nor can potential investors for that matter.
Businesses that can offer uniqueness of data collection, backed up with processes that respect the current wishes of consumers will stack up far more than some funky statistical algorithm processing millions of consumer records in some amorphous mass, professing to offer the ‘holy grail’ in responsive direct marketing techniques. Intellectual property is not worth a bean in a market that demands exacting compliance.
A higher standard of compliance is a very welcome prospect. Firstly it raises the barriers of entry for completion. There have been countless ‘consultant brokers and intermediaries’ emerge over the years, having been employed inside data businesses for a few years, suddenly then to set data broking companies up overnight. A tougher regulatory environment will literally clear out the clutter and shorten the ‘data chain’ and dispose of the cowboys out there too.
There is no doubt that that investors will want to buy into our profitable market sector. However, the wary investor will be far more exacting in their due diligence. Investors will want to be satisfied that their investment represents low risk.
Equally, businesses that can demonstrate their exacting provenance of the data, as well as their proximity to consumers and the uniqueness of collection methods, will be able to command higher price to earnings values versus the companies that are floundering in the data chain.
Steve Reid is sales director at TPL Media