Buying a Business for its Data

Buying businesses is often a bit like buying fashion: you have to follow and predict trends. And one of the hot trends of this season is to buy a business for its data.

It was revered investor Ann Winblad who remarked back in 2012 “data is the new oil”.

This comment came when the buzz surrounding ‘big data’ was only just becoming audible. Now the comparison between oil and data is relatively common; while oil defined the pre-20th century era as the substance that nations and companies strived for, data is very much the premium product of the 21st century.

The notable rise of cybercrime is evidence in itself of data’s immense market value. According to a government-commissioned survey, undertaken by PwC, 90 per cent of large companies (500-plus employees) in the UK were hit by a cyber attack in the past year, compared to 81 per cent 12 months ago. For SMEs, 74 per cent reported a breach, up 14 per cent year-on-year.

However, despite its value, there are many businesses that are sitting on mounds of data and doing little with it, perhaps because of technological ignorance or perhaps because of budgetary constraints. If a business buyer can acquire a firm with a vast set of unused or unprocessed data, then unlock and gain insight into this information store, they will create new value and hence opportunities for improved profits.

The Explosion of Big Data
Big data, to offer a brief definition, refers to data sets that are too large or complex to be stored or analysed by traditional applications. Its explosion onto the scene as the biggest business technology of recent years is thanks to the exponential growth in the amount of data organisations have at their disposal as well as the increasing availability of cheaper storage and affordable tools required to analyse it.

According to analyst firm IDC, 1.8 zettabytes, or 1.8 trillion gigabytes, of information was created in 2011 – by 2020 it is predicted that we will generate 40 zettabytes.

This huge growth in the amount of data being generated has been driven by several key developments: the Internet of Things, which is the connected world of devices that are created with communicative electronics, software and sensors embedded within them; a huge uptake of social media; and the use of tablets and smartphones as a central part of people’s day-to-day lives.

To return to the earlier analogy, data is just like crude oil. It is hugely valuable but to tap into that value the data processes must be put in place, it has to be treated and turned into something profitable.

Data-driven Business Acquisitions
With data an increasingly valuable commodity for businesses today, there is an argument to be made that business buyers ought to target firms that have data amongst their assets.

Importantly, this does not mean buying a technology company, nor does it mean buying a business that has data analytics software in place. The data is itself where the value lies, even if the holder has not unlocked the potential within yet.

Data can, of course, come in many forms. As such, data-driven business acquisitions will vary in their nature; it could be anything from buying a marketing agency for its consumer data or a professional services firm for the information it holds about markets or other companies.

Whatever the case, the key consideration a business buyer must make is what value the raw data could provide following the acquisition. Ovum has forecast that the market for big data software is expected to grow by 50 per cent by 2019 – and as the tools to turn data into insights become more prevalent, the more business buyers can eye up data held by acquisition targets as a potential well of untapped oil.

AccuWeather’s acquisition of WeatherBank, Inc. in early 2015 is an example of a data-driven acquisition. WeatherBank provides comprehensive raw data about the weather while AccuWeather provides weather forecasts and graphics to the media. With the analytics and visualisation tools already in place, AccuWeather realised that the additional data it would be acquiring would, in the words of its CEO Barry Lee Myers, [i]“be further strengthening the AccuWeather forecasting capabilities and services for businesses around the world”.[i/]

Turning Data into Profits
There are various ways that value can be transformed into profit. The most obvious use of data is to enhance a business’ understanding of its customers – real-time market insights can help in everything from research and development through to sales and customer services.

If the business is being bought as a bolt-on acquisition then the data can be assimilated with existing information to create a richer, more detailed picture of customers or markets. It ought to be noted, however, that there will be technology-related questions when it comes to merging data sets or ensuring as a buyer you have the necessary storage, tools and skilled personnel to handle and analyse the data.

Mobile apps, loyalty cards, online traffic, social media accounts: all of these technological points of contact between a business and its customers provide data that, if put to good use, can provide actionable insights to improve and evolve a business.

For example, if a retail business has a lot of customers visiting its website then this can be analysed in real-time to monitor user behaviour, in turn informing how the business lays out its website to optimise sales. Combine this with sentiment analysis on social media posts and clickthrough rates for an email marketing campaign and suddenly a business has a more comprehensive view of its customers and prospects, and how to affect its bottom line.

When acquiring a business, it is going to become increasingly common that data sets rank highly on a buyer’s wish list. With big data still in its relative infancy, there are a huge number of organisations that are sitting on large pools of data they are not making use of – if a buyer can see the value in this data and has a way of exploiting this value, then buying a business for its data can be a lucrative approach.

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