Simon Farrell

The business world has evolved rapidly as technology has developed. So too has the concept of CRM. Legacy CRM systems began on spreadsheets, but the modern landscape of CRM is a multitude of disciplines and sectors combining to create Customer Relationship Management through a mixture of data services, client-facing offerings and informational security.

The increased channels that technology has created for businesses to reach consumers have also expanded services related to the CRM sector to include a wide variety of business types.

It is this diversity of application across sectors and channels which has for some time, afforded CRM and CRM related services the high merger and acquisitions valuations they are attracting in the global M&A market today.

The broad spectrum of businesses which now exist in the modern Customer Relationship landscape are attracting increased investor interest and securing high valuations, and this is down to two main factors.

Ongoing Scarcity

It continues to be the case that there are few opportunities for investment in CRM and related businesses. Prior to 2021, the peak of the current merger and acquisition cycle for CRM and CRM related businesses was in 2015, when a total of 2,456 deals were completed across North America, Europe and Asia-Pacific markets. Since then, there was a continued decline in M&A activity, which was further hampered by the global pandemic in 2020. Last year, however, saw a remarkable 94% increase in investment activity as the number of completed CRM-related transactions reached over 2,700 – a new record! This is a huge number but still appears insufficient to meet the growing investment demands of consumer-facing acquirers and private equity firms that, according to Bain &Co, now hold over $1 trillion of uninvested buyout capital that must be put to work.

As opportunities to capitalise on the benefits the best CRM platforms can bring to both B2B and B2C businesses, mergers and acquisitions continue to be relatively scarce and this has resulted in increasingly higher valuations of CRM and related businesses completing an M&A transaction.

Value of Data

As discussed, data is one of the defining components of a modern, customer focussed business. For any company wishing to scale, understanding the landscape of opportunity before them through customer data is imperative.

As a result, the value placed on CRM related services and the more evolved Data Management Platforms (DMP) and Customer Data Platforms (CDP) has increased. In contrast, legacy AdTech and early form data services businesses are the two sub-sectors feeling the pinch the hardest.

Just as CRMs have been developed to reach out and capitalise on the collection of consumer data from external sources, so too are they developing to bring value to businesses by taking advantage of the rapid changes taking place across social channels. Social marketing is one of the primary data gathers of the modern era, so it is no surprise that businesses providing advanced social marketing services or data analytics are securing the highest median valuations of all assets acquired in the broader CRM-related sub-sectors.

It is these high-value assets, now utilising AI, Machine Learning and predictive analytics to generate greater customer knowledge and experience that are in the shortest supply. The good news, for both financial and strategic investors, is that venture and other early-stage investors also see the potential rewards of investing in such start-ups and so the pipeline for forward-thinking and nimble investors into more mature CRM-related companies is unlikely to dry up.

If the trend is anything to go by, the M&A market will become even more competitive and investors will be faced with higher valuations for the best quality CRM-related businesses and particularly those offering advanced data analytics and social marketing services. And, of course, the best of those investors will already be tracking for the next best CRM innovation from which to benefit.

As well, as financial investors and strategic consumer-led businesses, technology firms are the other main acquirer of CRM-related companies (the three groups combined, accounted for over 80% of all CRM-related M&A activity in 2021). The rationale for acquiring such businesses is the subject of the next in the series.

For more information about how Panamoure can help and advise you with your CRM project or other areas of technology transformation please get in touch.

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We are pleased to announce the launch of a ninth pillar in our IT Due Diligence process, which identifies and generates value creation opportunities for private equity (PE) investors. This new pillar is designed to uncover additional levers for growth and drive both immediate 100-day plans and long-term digital value creation initiatives.  

The private equity (PE) landscape has seen better days. M&A activity is down, and exits have plummeted to their lowest point in over a decade, dropping 66% from their peak in 2021. High interest rates have made refinancing debt structures from as far back as 2019 increasingly expensive. As a result, exits are becoming more protracted, and many buyout funds are struggling to offload portfolio companies amid an uncertain environment that negatively impacts valuations. Now more than ever, there is a pressing need to maximise the value of existing portfolios.