!

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?

Does
data
have
a
price,
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:
Does
data
have
a
price,
finally?

What
are
the
standard
methods
of
valuation? 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 million euro1. When using this method of valuation, SFX Entertainment makes a 'goodwill'
payment of 93.6 million 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
million euro
over
three
years. 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 overvalue
or
'goodwill'
of
80.4
million. 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.

Paper:
Does
data
have
a
price,
finally?

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&T
shows
an
average
bankers
cash
flow3
of
3.2
million
euro. 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 over
79
million
euro. 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. Why
does
SFX
Entertainment
pay
this
enormous
price
for
ID&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 to increase 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.
Paper:
Does
data
have
a
price,
finally?

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.

(figure
1
-
Facebook
fans
&
Twitter
followers
Tomorrowland)

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.

Paper:
Does
data
have
a
price,
finally?

ID&T (13
brands) Facebook, Twitter, YouTube Churn rate / Overlap % Unique followers / fans Total

Input (connections) 6,500,000 15% / 23% 4,000,000

Basic value

Additional value

Total value

1,4,000,000
4,000,000

5 4,000,000
20,000,000

6 4,000,000
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 the
second
half
of
2013? 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.

(figure
2
-
Value
increase
on
the
basis
of
social
media
growth,
ID&T
selling
price,
Value
from
Social
Media
Data)

Paper:
Does
data
have
a
price,
finally?

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 therefore
the
company
value. 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 the
USA
as
in
India
and
China? 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.

(figure
3
-
Value
increase
on
the
basis
of
social
media
growth,
ID&T
selling
price,
Value
from
Social
Media
Data)
Paper:
Does
data
have
a
price,
finally?

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. By making 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. Essentially 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.

Paper:
Does
data
have
a
price,
finally?

Conclusion: Looking at the aspects of knowledge and clients within the term Goodwill, new additional value is being developed on the basis of data. With the advent of the latest social media trends and technologies, where it is now possible for ID&T to save all the data which is generated by its fans and followers in online chats or conversations, it is abundantly clear that the vision on company valuation and the Goodwill aspect will change. In the valuation of ID&T by SFX Entertainment very clear indications can be found that on the basis of future developments the data on fans and followers of ID&T festivals and events will add value to the organisation, worldwide. The (seemingly) large purchasing price of ID&T, could theoretically
-
when
looking at figure 2 and figure 3
- be paid back within 2.5 years, if a careful social media policy and internet strategy is ensured throughout the entire organisation.

Paper:
Does
data
have
a
price,
finally?

Note
1. All
financial
figures
used
in
this
paper
are
originally
taken
from
the
published
annual
statements
of
ID&T
Holding B.V.
at
the
Chamber
of
Commerce
in
Amsterdam. 2. When
valuing
transactions
at
non-listed
companies
it
is
important
to
be
aware
of
the
specific
background (financial
buyer,
strategic
buyer,
minority/majority
interest,
additional
conditions,
etc.)
of
the
transaction. 3. 4. Bankers
Cash
flow
=

Net
profit
plus
depreciations. Based
upon
figures
from
the
festival
data
dashboard
of
DDMCA

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, JoinFeedBack,
Dance
Therapy,
Armada
Music,
Extended
Music,
Eurosport,
B2S,
2-Dutch
Agency,
8ballMusic,
Whoopaa, HRMatches,
Werk
en
IK,
Muziek
Centrum
Nederland,
Herome,
Amsterdam
Dance
Event,
JunkieXL. A
good
internet
strategy
begins
with
a
good
Action
Plan.
DDMCA
is
specialised
in
making
of
Action
Plans.
Questions?
Please do
not
hesitate
to
contact. Disclaimer
&
Copyright DDMCA
and
Performance
&
Investment
Management
(PIM)
are
currently
working
together
to
refine
the
valuation
models based
on
data
from
social
media
channels.
Questions
how
to
value
a
brand,
artist,
DJ,
band
or
athlete?
Feel
free
to
contact denis.doeland@ddmca.com 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, commercial
opportunities
or
goodwill. This
article
is
issued
under
Dutch
copyright
law
and
may
not
be
reproduced,
distributed,
transmitted,
displayed,
published
or broadcast
without
the
prior
written
permission
of
DDMCA
the
owner
of
the
issued
content.
You
may
not
alter
or
remove
any trademark,
copyright
or
other
notice
from
copies
of
the
content
without
prior
written
permission. Need
a
financial
valuation
report?
An
offer
for
a
full
complete
valuation
report
provided
with
a
fairness
opinion
of
a
register valuator
can
be
required
via
denis.doeland@ddmca.com Contact DDMCA Attn.
Denis
Doeland Keizersgracht
330-b 1016
EZ
Amsterdam The
Netherlands Mobile:
+31
6
13520250 Web:
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Paper:
Does
data
have
a
price,
finally?