does data have a price, finally?

7/28/2019 Does data have a price, finally?

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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?


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Doesdatahaveaprice,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:Doesdatahaveaprice,finally?

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Whatarethestandardmethodsofvaluation?

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 mill ion euro1. When using this

method of valuation, SFX Entertainment makes a 'goodwill' payment of 93.6

mill ion 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

companies2. 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 mill ion

eurooverthreeyears.

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

overvalueor'goodwill'of80.4million.

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.


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The future cash flows of ID&T are unknown to us and hasnt been revealed.

However, it is possible to make careful predictions based upon past results.

ID&Tshowsanaveragebankerscashflow3of3.2millioneuro.

With the acquisition of ID&T, so-called synergy effects are likely to occur.

Future cash flows are assumed to increase. Lets 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

over79millioneuro.

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.

WhydoesSFXEntertainmentpaythisenormouspriceforID&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&Ts 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 toincrease 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.


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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.

(figure1-Facebookfans&Twitterfoll owersTomorrowland)

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 2013. The table below includes the 13 most important ID&T brands.


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ID&T

(13brands)

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 thesecondhalfof2013?

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.

(figure2-Valueincreaseonthebasisofsocialmediagrowth,ID&Tsellingprice,ValuefromSocialMediaData)


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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

thereforethecompanyvalue.

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

theUSAasinIndiaandChina?

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.

(figure3-Valueincreaseonthebasisofsocialmediagrowth,ID&Tsellingprice,ValuefromSocialMediaData)


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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. Bymaking 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, Levis, 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. Essential ly 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 euro4. 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.


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Note

1. AllfinancialfiguresusedinthispaperareoriginallytakenfromthepublishedannualstatementsofID&THolding

B.V.attheChamberofCommerceinAmsterdam.

2. Whenvaluingtransactionsatnon-listedcompaniesitisimportanttobeawareofthespecificbackground

(financialbuyer,strategicbuyer,minority/majorityinterest,additionalconditions,etc.)ofthetransaction.

3. BankersCashflow=Netprofitplusdepreciations.

4. BaseduponfiguresfromthefestivaldatadashboardofDDMCA

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 its 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,

JoinFeedB ack, Dance Therapy, Armada Music, Extended Music, Eurosport, B2S, 2-Dutch Agency, 8ballMusic, Whoopaa,

HRMa tches,WerkenIK,MuziekCentrumNederland,Her ome,Amsterda mDanceEvent,JunkieXL.

A good internet strategy begins with a good Action Plan. DDMCA is specialised in making of Action Plans. Questions? Please

donothesitatetocontact.

Disclaimer&Copyright

DDMCA and Performance & Investment M anagement (PIM) are currently working together to refine the valuation models

based on data from social media channels. Questions how to value a bra nd, artist, D J, band or a thlete? Feel free to contact

[email protected]

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,

commercialopportunitiesorgoodwill.

This article is issued under Dutch copyright law and may not be reproduced, distributed, transmitted, displayed, published or

broad cast without the prior written permission of DDMCA the owner of the issued content. You may not alter or remove any

trademark,copyrightorothernoticefromcopiesofthecontentwithoutpriorwrittenpermission.

Need a financial valuation report? An offer for a full complete valuation report provided with a fairness opinion of a register

[email protected]

Contact

DDMCA

Attn.DenisDoeland

Keizersgracht330-b

1016EZAmsterdam

TheNetherlands

Mobile:+31613520250

Web:ddmca.com

Web:denisdoeland.com


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does data have a price, finally?

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