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Some Thoughts on Buying & Selling Research Companies

Perspective on Mergers & Acquisitions

October 21, 2011

Terry Kent

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Agenda

• Disclaimer

• Perspective on Mergers and Acquisitions in a Recession economy

– More consolidation - fewer buyers

• What Are Buyers Looking For?

– With syndicated products

– Without syndicated products

• How Should Sellers Prepare?

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Perspective on Mergers and Acquisitions

in a Recession economy• More consolidation - fewer buyers

• Digital crowds the field

• Luck is a factor: right time – right place: who you know

• It is as hard to buy a $5 million company as it is to buy a $50 million company

• Why buy a company worth less than $10 million?

– Early stage with high growth potential

– Strategic “fill-in-the-gap” products or services

– Synergies make the financial model attractive

– They have a new product with a Patent that is defensible

– They have a talent pool with unique skill sets

– Cash is king but data is great

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Research companies with syndicated products

• Sustainability of methods that are the foundation of the products

– New products

– Synergies with other products and services

– Potential for international expansion

– Unique IP

• Quality of staff

– Technical leadership

– Depth of staff

– Will they stay?

– Succession planning

• Quality of management

• Realistic financial histories (ups and downs) and forecasts based on realistic and stated assumptions

04/20/23 4Terry Kent

What Are Buyers Looking For?

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What Are Buyers Looking For?Research companies without syndicated products (custom/pseudo-custom)

•Depth of clients with ongoing repeatable research programs (tracking awareness, share, ROI)

•Vertical expertise

•Quality staff with teams assigned to each client with depth team

•Versatility in expertise so they can adjust to a fragmenting, consumer behavior, media and

social environment

•Versatility in expertise so they can adjust to a fragmenting number of methods:

‒ Are they using new methods that can define what they measure and have some value to clients?

‒ How many competitors over the new method?

‒ How easy is it to replicate?

‒ Can they expand in home and foreign markets?

‒ Is the service “syndicatable”? Can it be productized?

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What Are Buyers Looking For?Research companies without syndicated products

• Depth of management

‒ Overall

‒ Rainmakers

• How many and what they are good at selling?

• Do they have a mix of ages so that succession is clear?

• How are they compensated? Can the buyer retain?

‒ Methodologists and statisticians - math expertise

‒ Operations technical back room

‒ Who are they hiring? Number of “journeymen”

‒ How are key staff members compensated?

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Questions Between a Buyer and a Seller

• Why do you want to sell or merge?

• Are you looking for just investment, or a strategic partner/buyer?

• Who is the decision maker?

• What is the ‘process’ and how long does it take?

• Do you have realistic valuation expectations?

• Are you prepared to consider an earn-out scenario to get your “number”?

• Are you prepared to be “absorbed” into a larger corporate culture?

• Are you willing to help the buyer retain staff?

• Is now a good time to sell?

• Do you need or should you get help and representation?

710/21/2011 Terry Kent

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Market Research Council

Gridley & Company LLCA Perspective on Market Research Trends

October 21, 2011

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Key Industry Issues

• Definition of online panels evolving

• Threat of real time analytics and customer interaction / feedback

• Growing ability for brands to get direct consumer input and feedback

Changing perception of market research industry

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Key Value Drivers for Market Research

Key Industry Themes

Technology-Enabled

“Infrastructure, scale, & data”

Technology-Enabled

“Infrastructure, scale, & data”

Social

“Become part of the conversation”

Social

“Become part of the conversation”

Mobile

“Fish where the fish are”

Mobile

“Fish where the fish are”

Online

“Global reach at a low cost”

Online

“Global reach at a low cost”

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Continual Shift to Online Channels

Source: ESOMAR.Source: ESOMAR.

The Continuing Rise of Online Research

• Online continues growth at the expense of telephone and face to face

• Online research spending now at $7.5BN

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

2007 2008 2009 2010

OfflineOffline

OnlineOnline

Global Market ResearchGlobal Market Research

24% of Total

Market

24% of Total

Market

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• Technology underlies rapidly shifting business models in the Market Research industry

Technology-Enabled

Infrastru

cture

Scale

Data

• Internet

• PC

• Mobile, tablets

• Able to reach & engage global audience

• Low cost

• Technology driven

• Rich data sets

• Alternative data collection methodologies

• Privacy concerns remain an issue

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• With nearly 2 billion people speaking in social media, brands are seeking to become part of the conversation

• Low cost market intelligence driven by thoughtful engagement

Social

Coca-Cola Starbucks

Example of Coke using Facebook to

elicit feedback on bottle design

Example of Coke using Facebook to

elicit feedback on bottle design

Massive audienceMassive audience

Example of Starbucks engaging customers to elicit

information

Example of Starbucks engaging customers to elicit

information

Keeping its audience engaged with point scoring

system

Keeping its audience engaged with point scoring

system

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Mobile

Today

• Mobile phone market research works the same way as online research but uses the Internet browser

• Questionnaires are delivered via an SMS or WAP message, automatically launches the survey on the mobile phone.

• Questions are then answered, and the data is gathered in real-time

What’s Next

• Opt-in Apps

• Geo-specific engagement

• Social networking integration

• Game driven engagement

• With 5.3 billion mobile subscribers, market research companies are find new and innovative ways to engage consumers in the go

• Mobile will quickly overtake the PC as the most popular way to get on the Web

• Industry is in the midst of developing best practices for deployment

• Hit people with surveys any time – able to “measure the moment”

• Wherever they are

• Whatever they are doing

• Always on

• Primarily communication device

• Rich surveys (MMS Video's / Photo's)

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Public Companies in Market Research

Traditional B2B Data Online Measurement

Source: CapIQ.Source: CapIQ.

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Public Company Valuations

(100.0%)

(50.0%)

0%

50%

100%

150%

Oct-2

0-20

06

Mar

-20-

2007

Aug-1

4-20

07

Jan-

09-2

008

Jun-

05-2

008

Oct-3

0-20

08

Mar

-30-

2009

Aug-2

5-20

09

Jan-

21-2

010

Jun-

18-2

010

Nov-1

2-20

10

Apr-0

8-20

11

Sep-0

5-20

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Traditional B2B Data Online Measurement

Traditional +11%Traditional +11%Measurement +20%Measurement +20%

B2B Data +99%B2B Data +99%

Online -86%Online -86%

Source: CapIQ.Source: CapIQ.

Sto

ck P

rice

P

erfo

rman

ce

Mar

ket

Cap

($B

N)

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Select M&A Transactions

Acquirer / TargetAcquirer / TargetLTM Rev Multiple

LTM Rev MultipleDateDate CommentaryCommentary

Traditional Market ResearchTraditional Market Research

B2B DataB2B Data

• Highly fragmented

• Lots of “Moms & Pops”

• Picky strategic buyers

• Highly fragmented

• Lots of “Moms & Pops”

• Picky strategic buyers

• Typically vertically oriented

• Higher value proposition and proprietary

• Typically vertically oriented

• Higher value proposition and proprietary

Transaction Value ($MM)Transaction Value ($MM)

NANA NANA

$525.0$525.0 1.00x1.00x

$196.3$196.3 NANA

$223.0$223.0 NANA

$25.0$25.0 NANA

07/27/1107/27/11

01/09/0801/09/08

09/18/0809/18/08

04/06/0804/06/08

03/17/1003/17/10

07/28/0907/28/09

03/08/1003/08/10 $643.2$643.2 1.29x1.29x

$5,071.9$5,071.9 2.34x2.34x

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Select M&A Transactions (cont’d)

DateDate CommentaryCommentary

Online Market ResearchOnline Market Research

• High valuations and M&A activity in the mid 90’s

• Healthy level of activity this year

• High valuations and M&A activity in the mid 90’s

• Healthy level of activity this year

Acquirer / TargetAcquirer / TargetLTM Rev Multiple

LTM Rev Multiple

Transaction Value ($MM)Transaction Value ($MM)

$100.0$100.0 1.54x1.54x02/07/1102/07/11

$237.7$237.7 2.02x2.02x02/14/1102/14/11

NANA NANA06/02/1106/02/11

NANA NANA10/06/0910/06/09

NMNM NMNM06/26/0906/26/09

$121.8$121.8 1.64x1.64x10/23/0910/23/09

$84.4$84.4 1.41x1.41x01/28/0901/28/09

$421.5$421.5 3.06x3.06x08/06/0808/06/08

NANA NANA10/07/0810/07/08

NANA NANA09/07/1109/07/11

OTXOTX

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Select M&A Transactions (cont’d)

Data Driven / MeasurementData Driven / Measurement

• Consistent value proposition

• Many successful outcomes

• Broad universe of buyers

• Consistent value proposition

• Many successful outcomes

• Broad universe of buyers

DateDate CommentaryCommentaryAcquirer / TargetAcquirer / TargetLTM Rev Multiple

LTM Rev Multiple

Transaction Value ($MM)Transaction Value ($MM)

$43.7$43.7 4.41x4.41x05/28/0805/28/08

$240.0$240.0 6.00x6.00x04/19/0704/19/07

$75.0$75.0 5.03x5.03x03/03/0803/03/08

NANA NANA06/27/0706/27/07

NANA NANA07/09/0707/09/07

NANA NANA01/14/1101/14/11

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Traditional Market Research

• Challenging market dynamics given exploding online channels

• Many players thinking through consolidation and exit opportunities

B2B Data

• Vertical focus and proprietary approach drives value

• Subscription oriented businesses get premiums

Online Market Research

• Use of new technologies and techniques drives values

Measurement

• Data and data analytics drives value

• Historically has achieved premium valuation to broader sector

• Exit timing doesn’t matter

Advice to the Audience

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Linda Gridley, President & CEOGridley & Company LLC

10 East 53rd Street, 24th FloorNew York, NY 10022

212.400.9720 tel212.400.9717 fax

Twitter: @gridleycowww.gridleyco.com