What to Make Of the Investment Activity in MR?

Dependent on context, “Follow the money” is a phrase with a lot of different meanings, but one of its most basic implications is that, by following financial flows, insight can be gained. That is certainly true when we examine the unprecedented amount of investment and mergers/acquisition activity happening in the insights and analytics space in 2021.

Here is a quick summary of the activity using articles published by our friends at MR Web:

Wow!

And that isn’t even complete. Most deals reported on fall under the “terms were not disclosed” category, and we are sure some deals were not reported on at all, so the numbers cited above are only part of the story. The totals are likely much, much higher! That said, just using this partial data, over $26B has flowed through this industry across 142 transactions so far this year, with almost $23B of that just within the last six months!  Unprecedented doesn’t even do this level of activity justice – it is downright astounding.

So, what do we make of this amazing level of financial transaction activity? Well, we have a few thoughts that we hope will help everyone get a handle on what is happening and what it means for the industry.

In the last few years, the closest sector to our industry that saw a surge like this was the heyday of AdTech and MarTech. That was driven by three key characteristics: 1.) technology-driven companies, 2.) access to critical data streams, and 3.) advanced analytics. The heyday of research is now, and we are seeing the same three characteristics for the majority of the deals happening; the largest value acquisitions are all SaaS-based businesses and virtually all of the investments are going to tech/data/analytics companies. That doesn’t mean no service-based businesses are involved in this frenzy, but they are not driving it. However, many of the technology-led businesses also do have service offerings, sometimes substantial ones, but that service-based revenue is typically not the “tip of the spear” when it comes to driving deal value.

The combination of scalability for tech-led businesses and the demand for data to unlock new business value is obviously attractive, but combined with the fact that the insights and analytics industry grew last year, and that it is an industry being disruptively transformed by multiple trends makes it a virtually irresistible target for financial markets. That is why we are seeing both consolidation (Lucid/Cint being the most obvious example) and venture capital activity driving growth for many companies (with Attest, Disqo, Suzy being recent examples). What is particularly interesting across transaction types are the large valuations; our industry traditionally did not see high forward revenue-based multiples, but in 2021 that has been the rule with 10X (and higher!) being normal. That is a sure sign that the industry is now being considered as a good bet for continued growth and value creation.

Given all of this activity in 2021, what happens next? Well, we expect this to be driven by basic supply and demand, and we may be heading into a supply crunch in 2022. Most of the largest data collection, sample, and analytics companies have conducted transactions, leaving far fewer companies available. We won’t name names, but we expect that there are about a dozen leading companies that are looking very attractive to Private Equity and Strategics right now, with another twenty or so companies that are poised for growth capital infusions or strategic acquisitions.

Online qualitative has been underrepresented in deal flow in 2021; we expect that will change going forward as well, as many of those companies are included among companies we suspect will be in the next round of deals. We also expect to see more deals for behavioral and transactional data companies likely as augmentation plays, as well as “Web 3.0” privacy-centric offerings as early-stage investment targets.

That said, there’s a big question here: Are high valuations sustainable? For the foreseeable future, likely so, since the tailwinds driving the industry show no signs of subsiding anytime soon. However, the natural lifecycle of financial markets will eventually become more visible as deal volume slows down and companies focus more on long-term sustainable growth.

In summary, it’s a great time to be in the insights and analytics industry, especially if you are a “ResTech” company. The industry is healthy and growing, and the financial markets are responding to that positive trajectory. We expect there is more to come as we head into 2022, but as the supply of available companies dwindles it will slow down. Valuations will remain high for the foreseeable future but are likely already near the top of the range and some leveling out is expected as deal volume begins to taper down.

Congratulations to all the founders, leaders, and teams involved in these deals. Thank you for helping to transform our industry and for making it attractive to the investment community!