Does data have a price, finally? By Denis Doeland and Pim van Berkel

Transcription

1 ! Does data have a price, finally? By Denis Doeland and Pim van Berkel Much has been written about the currently fashionable term Big Data. The value of data is also frequently discussed online. But what is a reasonable value? Has data recently been given an actual price with the acquisition of ID&T by SFX?

2 Does data have a price, finally? Much has been written about the currently fashionable term Big Data. The value of data is also frequently discussed online. But what is a reasonable value? Has data recently been given an actual price? The acquisition by American SFX Entertainment of the Dutch company ID&T, in their own words the organiser of events and festivals within the Electronic Music Culture i.e. Dance events and festivals, appears to give an insight into the actual value of data. ID&T is primarily recognized for events such as Sensation, Mysteryland and Tomorrowland. The company was founded in 1992 and is currently active in more than 22 countries in Europe, Asia, Australia, South America and North America. ID&T is dedicated to achieving a leading role in North America, where dance culture is growing at an explosive rate. But their ambitions are the same for the whole world. The press release published on Perssupport.nl on 21 March 2013 stated that SFX Entertainment purchased three-quarters of the shares in ID&T for an amount of approximately 100 million dollars. For this transaction ID&T was valued at over 130 million dollars, roughly 100 million euros. Paper: Does data now have a price? 1

3 What are the standard methods of valuation? The current and originally applied methods of valuation for companies essentially give the following results: 1. Intrinsic value: Brief explanation: Valuation based on the visible equity value of a company, possibly adjusted with hidden reserves, if any. In 2011, ID&T revealed an equity value of 6.4 million euro 1. When using this method of valuation, SFX Entertainment makes a 'goodwill' payment of 93.6 million euros. (100 million -/- 6.4 million). 2. Market multiples and comparables: Brief explanation: When using market multiples the value of the company is based on the indication the stock market is willing to pay for comparable companies 2. Often the Earnings Before Interest, Tax, Depreciations and Amortization (EBITDA) is multiplied by an industry or market standard. Strictly speaking this EBITDA number should be reduced with the available net debt within the organisation. But for convenience sake we will leave this out of our hypothesis. The EBITDA of ID&T was 2.2 million, 4.2 million and 2.1 million for the years 2009, 2010 and 2011 respectively. Meaning an average EBITDA of 2.8 million euro over three years. With the assumption comparable companies are sold for 7 times this annual profit, the valuation of ID&T would be 19.6 million euro (7 * 2.8 million). An overvalue or 'goodwill' of 80.4 million. 3. Discounted Cash Flow (DCF method): Brief explanation: This is a valuation, whereby the future cash flows are turned into cash against the so-called weighted average costs of capital, abbreviated WACC. 2

4 The future cash flows of ID&T are unknown to us and hasn t been revealed. However, it is possible to make careful predictions based upon past results. ID&T shows an average bankers cash flow 3 of 3.2 million euro. With the acquisition of ID&T, so-called synergy effects are likely to occur. Future cash flows are assumed to increase. Let s assume a future cash flow of 5 million per year with a continuing cash flow of 20 million against the same discount rate after the 5th year. The discount rate, similar to the Weighted Average Costs of Capital (WACC), consists of a required return of investment for the shareholders and the average costs of interest bearing loans and other debts. With the assumption shareholders demand a return of 20% of their investment, a company value of 21 million euros is calculated for ID&T. With this valuation method there is once again a considerable 'goodwill' paid of over 79 million euro. With these well-known and classic valuation methods the value of ID&T appears to be around 10 and 20 million euro. However, with all three valuation methods one can clearly determine a significant amount of Goodwill has been paid by SFX Entertainment in the acquisition price of ID&T. Why does SFX Entertainment pay this enormous price for ID&T? Apparently the existing and current valuation methods give an entirely different value than the price which SFX Entertainment has paid. It is possible SFX Entertainment has valued ID&T s future cash flows higher than anyone expects. It is also more than possible SFX Entertainment in its purchasing price speculates about a following exit after a certain period. In that case, SFX Entertainment has to increase the value of the ID&T brands in the meantime. But how? The important other question, which is related to this transaction, is: Can it be determined the value of the underlying data has significantly influenced the selling price? The value of data from social media and the potential profit is generally not visible in financial annual statements. Traditional valuation methods do not adequately consider the underlying data. However, here there is enormous potential to increase future cash flows. 3

5 As Duncan Stutterheim has indicated during the presentation for the launch of Kroodle: The social media figures of ID&T are interesting for various companies who wish to be exposed to a large audience. With more than 6.5 million Facebook fans, YouTube viewers and Twitter followers, it has become attractive to be visible as a brand within the ID&T groups. This has already occurred offline for many years at ID&T, with brands such as Vodafone, Heineken, Budweiser, Bols and other brands being visible at ID&T festivals and events. Nowadays, a larger section of the fans can be found in the own online domain and the own social media channels. With incidental commercials on television generally lower viewing figures are reported. A glance at the data development of a number of brands within the ID&T organisation shows a number of important aspects. (figure 1 - Facebook fans & Twitter followers Tomorrowland) Tomorrowland is remarkable. This is an annual festival in Belgium. In a country smaller than the Netherlands, an enormous absolute worldwide growth in the number of Facebook friends and Twitter followers can be seen. An increase of 61.2% (+750,000 followers) in a period of only six months. With a few careful assumptions of the valuation of the underlying data, including potential earning models, ID&T can be valued at a value of 24 million euros based on its status in March The table below includes the 13 most important ID&T brands. 4

6 ID&T (13 brands) Input (connections) Basic value Additional value Total value Facebook, Twitter, YouTube 6,500,000 Churn rate / Overlap % 15% / 23% 1,- 5 6 Unique followers / fans 4,000,000 4,000,000 4,000,000 4,000,000 Total 4,000,000 20,000,000 24,000,000* (* = on the basis of valuation method as used by DDMCA and P.I.M. on The Voice) What happens with the valuation of these potential future cash flows, when the increase of fans and followers from Tomorrowland maintains the same trend in the second half of 2013? The graphic below shows the continuation of the current value as of March 2013 for the coming years and compares this with the purchasing price paid by SFX Entertainment. (figure 2 - Value increase on the basis of social media growth, ID&T selling price, Value from Social Media Data) 5

7 Bearing in mind the reasons for the acquisition of ID&T by SFX Entertainment, there is a much larger growth pattern to be developed in data, followers and therefore the company value. In the press release concerning the acquisition it states that ID&T strives towards a leading role in North America. SFX Entertainment wants to grow in the USA with a total population of 300 million citizens. A successful debut edition of Sensation in New York in October 2012 is a fact. With SFX Entertainment ID&T can now enjoy access to multiple locations in (the rest of) America. More Sensation events can be held there with the operational support of SFX Entertainment. Stutterheim stated, in the aforementioned presentation, that he wants to break through in India with ID&T, where currently 1.3 billion people reside. China has also shown significant interest in such highly-professional events. What will happen with the cash flows from new earning models or agreements with brands when the same growth is made by Sensation or Mysteryland in both the USA as in India and China? With a positive and healthy approach to the area of social media, unique followers can be found on Facebook, Twitter, Youtube, Pinterest, etc for setting up additional earning models. For example, by making agreements with brands, as was already visible offline in recent years with Vodafone, Heineken, Samsung or Bols for example. Now SFX Entertainment have an interest, this can be achieved with a much larger reach and ease. (figure 3 - Value increase on the basis of social media growth, ID&T selling price, Value from Social Media Data) 6

8 How can additional cash flow be generated to add more value to the current organisation? Brand integrations will occur in the networks of the various labels within ID&T. By making advanced and careful use of the own domain and social media networks, new and digital profiles from the data of the ID&T fanbase can be created. In addition to demographic data interest data is also created, as previously determined in The Voice - An additional earning model. Among other things, it can be determined which fan or follower of ID&T is interested in a certain product group by simply listening to the fanbase. The following steps ID&T need to take, is to collect the data and to analyse it to subsequently create the next or a completely new strategy, with achieving future revenues as the objective and to increase these revenues. Fashion brands such as Diesel, Replay, Levi s, Denham or Dolce & Gabbana can be connected with the ID&T fanbase. But also telecom providers, such as Vodafone or T-mobile, beer brands such as Heineken or Budweiser, soft drink brands such as Coca-Cola or Pepsi, or technology brands such as Apple or Microsoft. Essentially it is rather simple to, based on the relationship with the fanbase, make visible which brands would be interesting to integrate with the ID&T fanbase. And that has a price of course. With a careful look at the figures from the festival dashboard of DDMCA, you can now state that visibility on the Tomorrowland Facebook page has a monthly advertising value of 350,000 euro 4. Let alone valuing the entire Tomorrowland ecosystem. By making the scope of the followers and fans which fit various brands visible, increasingly lucrative agreements can be made. The full potential of the community, by way of data, which belongs to the ID&T brands (read: festivals and events) still has a long way go before it can be fully realised. 7

9 Conclusion: Looking at the aspects of knowledge and clients within the term Goodwill, new additional value is being developed on the basis of data. With the advent of the latest social media trends and technologies, where it is now possible for ID&T to save all the data which is generated by its fans and followers in online chats or conversations, it is abundantly clear that the vision on company valuation and the Goodwill aspect will change. In the valuation of ID&T by SFX Entertainment very clear indications can be found that on the basis of future developments the data on fans and followers of ID&T festivals and events will add value to the organisation, worldwide. The (seemingly) large purchasing price of ID&T, could theoretically - when looking at figure 2 and figure 3 - be paid back within 2.5 years, if a careful social media policy and internet strategy is ensured throughout the entire organisation. 8

10 Note 1. All financial figures used in this paper are originally taken from the published annual statements of ID&T Holding B.V. at the Chamber of Commerce in Amsterdam. 2. When valuing transactions at non-listed companies it is important to be aware of the specific background (financial buyer, strategic buyer, minority/majority interest, additional conditions, etc.) of the transaction. 3. Bankers Cash flow = Net profit plus depreciations. 4. Based upon figures from the festival data dashboard of DDMCA About DDMCA assists brands, companies and organisations to apply internet and social business to meet the new expectations of fans, clients, staff members and other involved parties. DDMCA helps give their voice a place in business and in the internal organisation. In the combination of development of knowledge, sharing of knowledge and consultancy in the area of deployment of internet from the organisation and social business sees DDMCA taking its place as a leader in it s field. DDMCA offers its services in the form of, among other things, consultancy, analysis, lectures, valuation, training, social media monitoring and internet monitoring. Clients of DDMCA are both major organisations as well as smaller ones who are aware that communication and conversation will continue to play an even greater role in and outside the organisation. DDMCA clients include Marlies Dekkers, 22tracks, JoinFeedBack, Dance Therapy, Armada Music, Extended Music, Eurosport, B2S, 2-Dutch Agency, 8ballMusic, Whoopaa, HRMatches, Werk en IK, Muziek Centrum Nederland, Herome, Amsterdam Dance Event, JunkieXL. A good internet strategy begins with a good Action Plan. DDMCA is specialised in making of Action Plans. Questions? Please do not hesitate to contact. Disclaimer & Copyright DDMCA and Performance & Investment Management (PIM) are currently working together to refine the valuation models based on data from social media channels. Questions how to value a brand, artist, DJ, band or athlete? Feel free to contact denis.doeland@ddmca.com Since the valuation is just an example DDMCA and Performance & Investment Management (PIM) will not be liable in respect of any business losses, including without limitation loss of or damage to profits, income, revenue, business, contracts, commercial opportunities or goodwill. This article is issued under Dutch copyright law and may not be reproduced, distributed, transmitted, displayed, published or broadcast without the prior written permission of DDMCA the owner of the issued content. You may not alter or remove any trademark, copyright or other notice from copies of the content without prior written permission. Need a financial valuation report? An offer for a full complete valuation report provided with a fairness opinion of a register valuator can be required via denis.doeland@ddmca.com Contact DDMCA Attn. Denis Doeland Keizersgracht 330-b 1016 EZ Amsterdam The Netherlands Mobile: Web: ddmca.com Web: denisdoeland.com 9