Sector snapshot: business information providers8th March 2021
As the importance of data in making everyday business decisions and longer-term strategic plays has increased, so too has the use of B2B information providers. Investor appetite has followed suit, with an opportunity to build providers with scale and drive inorganic growth through strategic M&A.
B2B information providers typically offer industry analysis and commentary, access to proprietary and open-source data and other industry information, such as recruitment boards, networking events and awards. Providers usually specialise in one sector, and the business model for a B2B information provider tends to fall into one of two categories:
1. The content as a product; or
2. The reader as a product
Providers of the former will focus on high-quality business-critical content, i.e. content which professionals rely upon to make day-to-day decisions; while providers of the latter will likely offer open access to broader information services, such as awards and recruitment information, which is supported by advertising sales. Businesses focused on providing content as their product are usually valued more highly by their users and use this business-critical need to justify more costly subscription models.
Despite being highly acquisitive, the larger multidisciplinary information providers, such as S&P Global Platts and Verisk, own less than 30% of the global market. The rest of the business information market is highly fragmented. There remain opportunities for mid-market private equity firms or mid-sized business information providers to grow sizeable platforms through buy-and-build strategies, before unlocking attractive exit options.
CIL has identified eight key value levers that potential investors should consider in an asset. Four of these levers cover the asset itself, while the other four focus on the target’s sector of interest.
INDUSTRY-SPECIFIC VALUE LEVERS
Growth opportunity within B2B information providers can vary greatly by sector. To identify potentially high growth, acyclical markets, investors should consider:
1. User budgets
Users of the service should have a business-critical need to access the information provided, with ringfenced budgets that result in less churn and stable revenues.
2. Sales potential
The provider should have the ability to win new clients through established routes to market, with low barriers to adoption.
3. Market dynamics
The sector of interest should be large, but still have plenty of growth opportunity.
4. Competitive environment
The sector should be fragmented, with clear international opportunities.
The energy market, for example, provides an attractive opportunity. Users are operating in a highly regulated sector, which can be exposed to high risk, high reward decision-making. Consequently, users have comparatively large budgets for information services. Multi-sourcing is common, with many firms having subscriptions to more than one provider at once. The market dynamics are favourable, with a stable number of potential users, as growth in renewables offsets any decline in users focused on more traditional energy sources. And finally, there is a fragmented, and international competitor set suitable for consolidation.
TARGET-SPECIFIC VALUE LEVERS
The most attractive assets within the business information space are those who have a hard-to-replicate business model, offering highly differentiated, scalable content, that leads to embedded, strategic relationships with their users. CIL has identified four value levers for assessing the attractiveness of an individual asset:
1. Data/information type
Data will either be proprietary or collated from multiple public sources. Self-sourced or original data will be the highest value-add and hardest to replicate, either by users in-house or by a competitor.
2. Internal scalability
The production and distribution of the data will either be automated or people-led. While both can be scaled successfully, automated content generation and distribution results in a much lower cost of service delivery.
3. Use case
The use case for the data provider should be clear – providers offering critical information, with broad appeal, will retain a competitive edge.
4. Quality of earnings
The revenue model and client retention of a business should be reviewed, with best-of-breed earnings coming from multi-year contracts with tiered pricing and the potential for upselling.With SMEs holding 50% of the market, CIL believes that the B2B information market provides growth businesses and investors with an opportunity for multiple arbitrage. Key to this is identifying a sector of interest and reviewing the attractiveness of its constituent assets, based on the eight value levers explored above.
To discuss any of the points raised in this article, please get in touch.