What drives real value for online subscription-based data and information businesses? Subscription revenues alone aren't enough - a recent Gartner study estimated that, by the end of 2015, 35% of Global 2000 companies will be generating at least some revenue through subscription-based service/revenue models.
We look back across recent transactions including the sale of PEI Media, the sale of Autodata, the acquisition of CAP for Solera and the acquisition of Briefing Media to identify the key characteristics which drive value in these businesses.
It must be 'must-have'
The 'must-have' status of certain B2B information streams drives premium valuations, as it supports high renewal rates and strong pricing. This 'must-have' status is harder to replicate for B2C information, which is why B2B data streams in general command higher valuations.
Not all B2B information products are sold as subscriptions, but those companies with subscription revenues benefit from better revenue visibility. Private equity investors love revenue visibility, because it supports higher levels of debt , and hence increases their returns.
It is also worth looking at the two fundamental routes for a B2B subscription information business to increase revenues , increasing the value per subscriber, and increasing subscriber volumes.
Value per Subscriber
There are a number of ways to increase average subscriber value: cross-selling multiple products, subscription pack upgrades, or careful yield/discount management.
A robust, well-invested CRM system is usually the key to helping subscription businesses identify cross-selling opportunities through related customer themes, or to implement consistent subscription pricing that reduces inefficient discounting, both of which can increase the subscription value per customer.
Subscriber Volume Growth
A premium valuation will also require evidence of a growing user base. If you're pointing to rapid growth to justify an exciting valuation, you'll need a well-invested technology stack that can scale efficiently to handle increasing volumes and spikes in activity.
One way to maximise net user growth is to minimise existing customer churn. Well-developed CRM systems can help to identify customers at risk of lapse, for example through declining engagement with the product.
Get these factors right and focus on an attractive, high-value B2B niche, and you can reasonably expect quite a lot of investor and trade acquirer interest.