AN INVESTOR’S VIEW: BIG DATA – DISSECTING THE HYPE

An Investor’s View – 24 November 2016

Big Data -Dissecting the hype

For a number of years, the market has been saturated by the term ‘Big Data’. As an investor, it has become one of the most over-used “titles” to describe a business, particularly when selling, as a means to a racy valuation. So it is really important to understand the value Big Data actually brings to a business; the title does not automatically earn the right to a super multiple – you have to get under the bonnet to work out its true value.

Firstly, what is “Big Data”? Well, according to Gartner,the technical assessment of whether a business has/uses ‘big data’ is measured via three components; the sheer volume of the data, the velocity at which it is processed and the variety of it. In the data industry, this is known as the three “Vs” and each “V” has its part to play. Big Data is much more than a KPI dashboard looking at historical data analysis, it should incorporate both structured and unstructured data in a way that helps predict and improve business operations.

Why does Big Data matter? In an ever more competitive world businesses and organisations need to understand their market, customers and solutions in depth; to either lead the charge with competitive advantage or frankly just keep up with the competition. As such, understanding the data produced across an organisation can create this competitive advantage. Until very recently, businesses have struggled to mash together the data generated from numerous sources and even if they could do this, they certainly could not do this in real time. But this is changing; the computing power available now to process this data in real time is immense.

Take retail for example, two or three years ago processing the customer spend at the till by product and location could take days. Supplementing this with stock information in real-time was just not feasible and that’s without even mentioning overlaying other factors that may influence customer behaviour such as weather conditions, store opening times, store temperatures and promotional activity. No longer is this the case; retailers can in very short time periods (in minutes not days!) now seek out the optimum correlation of factors to make the best real-time decisions and align their own internal processes and organisation to maximise the opportunity / profitability. Retail is just one example; using Big Data to improve decision-making is just as applicable in the manufacturing world, financial services industry, government, education – in fact nearly every industry can benefit from this informed decision making through Big Data processing.

The growth dynamics of the market are clearly exciting for investors – There are numerous reports estimating the size of the market and the pace at which it is developing. Our view is that the big data technology and services market is growing more than 20% per annum. This growth is not slowing and is being fuelled by two key factors:

  • The amount of data being generated – Data is being generated from ever-more devices and being used to create clear competitive advantages. Our recent investment in RS Connect is a good example of this; telematics devices installed in cars on behalf of insurers now gather billions of data points around driver behaviour. This data can be used to manage risk (removing dangerous drivers from an insurer’s book), identifying accident hotspots (and therefore price risk more effectively around postcodes) and provide valuable services to consumers (for example if the car is involved in an accident the insurer can immediately notify the emergency services and/or relatives).
  • Low cost cloud-computing & connectivity – with increasing connectivity speeds and greater availability of low cost processing power, SMEs can now utilise these data solutions, which until very recently has been the preserve of huge organisations who could justify the spend internally.

What area of this market are we looking to invest in?

We are actively looking for investment opportunities in the following areas:

  • Applications & managed services – Businesses offering data solutions to clients across verticals or in specific business areas (e.g. sales and marketing). Businesses in this area typically have their own platform or IP and offer an end to end service to corporates from idea conception to delivery and maintenance;
  • Consultancy businesses – Historically we have steered away from consultancies given the project nature of the work. However, due to the complexities around the various software solutions available as well as the need to curate the right platform by understanding business requirements ensures that client relationships are much stickier leading to recurring revenue streams. Furthermore, a buy and build strategy in this area, maybe coupling in cyber security and testing services will be a route to creating significant scale and value; and
  • Data integrity / vertical syndication businesses – There are a growing number of data cleansing businesses evolving. For companies to make the right decisions the old saying “what you get out is only as good as what you put in” is very true. Specialist data cleansing organisations are scaling up quickly as the demand for highly relevant internal data, linked with brought-in external data, can create real competitive advantage. This is specifically powerful around verticals including the energy and marketing sectors.

Overall we are extremely excited by the digital revolution as it creates the need for new services and solutions. Not every company can have the skillset within their own business to take advantage of the evolution of data solutions – it’s often too expensive, too specialist and fast-moving for most SMEs and corporates. Thus, we are very keen to partner with ambitious management teams in the above areas to help create tomorrow’s category leading big data businesses.

About Beech Tree Private Equity

Beech Tree Private Equity was formed with the vision to create a new type of investor. An investor to work in real partnership with management teams / founders to create category-leading businesses in fast-growth sectors. We want to work with like-minded driven management teams to grow their businesses, providing capital, expertise and connectivity to collectively create real value growth.

We will invest between £10m and £30m into UK headquartered businesses providing funding for Management Buy Outs, Secondary Capital (to provide partial cash out for founder shareholders) along with Primary Capital (to accelerate growth organically or through acquisition).

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