“There are decades where nothing happens; and there are weeks where decades happen.”
Vladimir Lenin
The start of 2021 has been one of those weeks, with not one, but three major M&A stories in the insights industry.
Qualtrics plans to IPO (again)
Just before the end of December, Qualtrics filed its second S1 in 2 years. SAP hopes to cash in big-time with a target valuation of at $12bn – $15bn (at least 50% increase on the already eye-watering $8bn it paid to acquire the company in 2019).
Full year revenue for Qualtrics will about $800m at 30% annual growth – so a target multiple of 15x – 18x revenue. A bit less than the 20x SAP paid. But still a big premium to Medallia, which currently trades at about 10x revenue (c. $5bn market cap on $500m annualised revenue).
InMoment buys Wootric
InMoment is the #3 CX player behind Qualtrics and Medallia, after buying Maritz last year.
Wootric is a lightweight digital CX platform used mostly for NPS feedback programmes. Many of its customers are technology companies themselves.
This deal is like Qualtrics’ purchase of Delighted (2018) and Medallia’s purchase of Kampyle (2016) – it beefs up their mobile feedback capabilities, brings some nice long term revenue and opens up the high volume SME market.
But it’s also about auto-cannibalising for InMoment. The CX tracking market is commoditising fast, and there are dozens of lightweight NPS feedback tools out there.
Wootric’s pricing plans start at $0, with paid tiers from $200 a month. Even enterprise customers are starting to ask why they should pay millions for bloated CX feedback programmes when tools like Wootric (or Nicereply or AskNicely or SatisMeter … ) can do a decent job for much less money.
Confirmit and FocusVision plan to merge
Confirmit provides survey and CX feedback software; the company was also merged with data visualisation platform Dapresy in early 2020.
FocusVision is really 5 or 6 different products under one umbrella (Decipher surveys, Kinesis panels, Revelation online qual, InterVu streaming, ResearchReporter … and a couple more).
On paper, this looks like a fairly complementary marriage of two mid-sized players who need to create scale.
What this means for M&A in the insights industry
Expect a lot more consolidation in 2021. The insights industry is ripe for it: it’s massively fragmented and undergoing rapid digital transformation.
The most educated guess (from ESOMAR) for the size of the insights industry (defined as market research and consumer data analytics) is around $80bn. The top 3 players have only around 15% of that ($6bn for the 2 bits of Nielsen, $4bn for Kantar, $2bn for Ipsos), and there are far too many mid-sized players.
Compare this to an adjacent market like CRM – in which the top player alone has a 20% share – and the scope for tech-driven consolidation becomes clear.
And the digital transformation of research and analytics has been accelerated in the COVID era. Many of the insight platforms in our directory saw record growth in 2020.
A dumb-bell shaped insights industry
The combination of these factors will create a dumb-bell-shaped market over the next 2-3 years. At one end, a handful of extremely large players; at the other, a large number of startups and niche players; and not much left in the middle.
Dumb-bell shapes are quite common in B2B technology markets because they exhibit both monopolistic tendencies and high levels of startup innovation.
Network effects drive the largest players to get bigger; and only the biggest companies can afford the high costs of constant product development and maintenance.
This is the underlying logic for the Qualtrics IPO: bring in more funds, drive growth, try to be the primary operating system of the insights industry.
(And make SAP a tonne of money before the current tech stocks bubble bursts).
At the same time, at the other end of the dumb-bell, it’s never been cheaper or easier to start a technology company. You can even build no-code applications without ever learning how to programme. There will be a continued stream of innovators, some of whom will grow up to be a Wootric; others will simply be rolled in as features by bigger platforms.
This leaves middling players very squeezed. Not enough heft to invest in product and marketing; too big to be acquired as an extra feature. Bulk up or sell out – hence the Confirmit-FocusVision deal.
So expect 2021 to be a hectic year of M&A in the insights industry as the big try to get bigger, the small hope to get bought and the rest try to get by.
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