KUHN CAPITAL Wednesday, December 13, 2017
Dispatches from the front

Update on Business Intelligence M&A
(10/31/2007)

We’ve followed the business intelligence (BI) sector, aka business analytics, for several years and continue to like the business.

It’s a simple, powerful concept -- assemble on a single “dashboard” the few most relevant metrics that best inform executives about the day-to-day performance of their department or company.

CFO’s and controllers first applied primitive versions of BI to track financial and cost performance, followed by heads of manufacturing who used it to assess efficiency and throughput. Next came sales departments, initially with salesforce productivity measures, then customer profitability and product mix optimization data. Last and least developed have been marketing and HR applications where quantification is more difficult. But the wealth of statistics generated by direct marketing, especially web-based, is now driving greater BI marketing utility.

Simple as the concept may be, BI execution can be complex:

  • First, the software vendor must intimately understand what numbers matter and these vary by executive function. Sometimes end-users themselves don’t know what numbers are important and must be educated.
  • Second, the app must customize easily, since every business is unique and has “ways it’s always been done”.
  • Third, BI is pushing into predictive analytics where statisticians create ways to spot trends and allow the user to anticipate and exploit changes in markets and product technologies. This is pretty sophisticated stuff.
  • Last, to retrieve, manipulate and present the right data on a continuous basis often requires tedious exercises in system-wide data routing and cleaning.

According to IDC, the BI sector grew about 12% per year from 2003 to 2006, or to about $6.4 billion, and is forecasted to grow 13% annually to $8.2 billion through 2009.

A relatively young business, consolidation is already underway, most recently evidenced by SAP’s agreement to buy Business Objects for $6.8 million or 4x TTM revenue. So far in 2007, the sector has seen 18 M&A deals close or announce at rich multiples: median enterprise value/sales = 3.7x; median enterprise value/EBITDA = 22x. Of course, as is typical, the biggest and most visible deals sport the biggest multiples.

Yet, there’s till room for creative entrepreneurs in the business and we expect to see new entrants focusing on the more arcane corners of BI for years to come.

For more detail on the research behind this Dispatch, contact us.

Ryan Kuhn


Copyright, © 2017. Kuhn Capital.
website designed & developed by alcasid.com