Unless you are a true B2B software nerd (which many of you are), you just thought to yourself, “Who bought who?”  After all, neither the acquirer nor the acquiree is exactly a household name.  Nonetheless, Verisk Analytics and PowerAdvocate are great businesses and archetypes of industry big data plays.  Entrepreneurs and investors have much to learn from these companies.

PowerAdvocate

The acquiree, PowerAdvocate, is described in the press release as follows:

PowerAdvocate’s proprietary, one-of-a-kind spend and cost data is curated from millions of transactions across thousands of services, materials, and equipment categories in the energy industry…Through its proprietary data set encompassing $2.7 trillion of spending data, and machine-learned methods, the company brings transparency to otherwise opaque markets and ensures that capital can be deployed in an efficient manner.

In more common lingo, PowerAdvocate is a specialized sourcing and spend analytics company focused on one gigantic vertical, energy.  By virtue of their verticalization:

• PowerAdvocate understands spends data at a level that the horizontal spend analytics players could never even conceive of.  And that detailed knowledge has real value for their customers.  It’s always great to know more than anyone else in the world about what stuff should cost in a gigantic, regulated capital-intensive industry.
• Almost no one outside the energy industry has ever heard of them!

B2B Data Businesses

I am ashamed to admit that I was only vaguely aware of Verisk Analytics before this announcement.  But I’m not the only one.  When a great enterprise software VC recently asked on LinkedIn for “the best/most clever examples of a B2B company with their own proprietary dataset”  the answers included:

• Morningstar and CoStar Group (those were mine)
• Linkedin
• Evestment
• CoreLogic (which competes with Verisk Analytics in some areas)
• D&B
• Bloomberg
• Capital IQ
• DiscoverOrg
• Platt’s

These are all great answers.   But, Verisk Analytics did not rate a mention!

Verisk Analytics

The case for Verisk Analytics being on the list of great B2B data businesses (and at the top of the list) is straightforward.  Check out these gaudy numbers Verisk Analytics puts up:

• $2 billion in annual revenue
• Consistent 7% CAGR in organic revenue
• 50% EBITDA margins
• A $15 billion market capitalization.  (Apparently, investors have not overlooked Verisk!)

There are a few reasons Verisk is not well known among B2B folks:

1. Like PowerAdvocate, Verisk Analytics is a vertical data business.  In its own words:  Verisk (Nasdaq:VRSK) is a leading data analytics provider serving customers in insurance, natural resources, and financial services. Verisk offers predictive analytics and decision support solutions to customers in rating, underwriting, claims, catastrophe and weather risk, global risk analytics, natural resources intelligence, economic forecasting, and many other fields. If you are not in insurance, natural resources or finance, you will not run into them.
2. For its first 25 years (until 1996) Verisk Analytics was a non-profit insurance consortium.  Verisk did not go public until after the financial crisis (2009).
3. Much of Verisk’s growth has come through acquisitions like PowerAdvocate.  PowerAdvocate will fit nicely with Verisk’s burgeoning natural resources segment.  Natual resources are Verisk’s second major vertical after insurance.  Come to think of it, Verisk now does data mining of mining data!

 

The Deal

For those of you interested in financial metrics, this is one of those rare instances when the terms of the deal were disclosed! Key valuation statistics for the deal are:

• Purchase price of $200 million in cash and an earn-out of up to $80 million based on goal achievement
• PowerAdvocate 2017 revenue and EBITDA of about $36 million and $11 million respectively.
• PowerAdvocate is expected to grow at substantially higher rates than Verisk’s historical average organic annual growth rate of 7 to 8%.

Before the earnout, this price represents a sales multiple of about 6x and an EBITDA multiple of about 18x.  (It’s interesting also to see PowerAdvocate’s EBITDA margin of 30%.)  PowerAdvocate clearly easily exceeded the rule of 40%!

It looks like a great deal for everyone.  Congrats to CEO Dan Sullivan, CRO Mark McVay, and the entire PowerAdvocate team.  It could not happen to a better, more dedicated set of people.