FEATURE21 February 2011

A private affair


Online fieldwork firm Toluna is being taken private like its rival Research Now before it. Both were good deals for the buyers, bagging them high-growth businesses – and with time away from the public gaze, managers have the opportunity to invest and innovate for the future.

Valentine’s Day is always good for a spot of courting – even in the corporate world, it seems. Toluna, won over by the charms of private equity group and minority shareholder Verlinvest, announced on 14 February it would soon be off the stock market, becoming a privately held entity again.

But why now? And why did online fieldwork rival Research Now follow a similar route more than a year ago – bought and taken private by E-Rewards, in a deal backed by private equity firm TA Associates?

Toluna and Research Now floated on the London Stock Exchange in 2005, and have spent the intervening years expanding their operations, either by acquisition or through organic growth. The most headline-grabbing move was Toluna’s takeover of Greenfield Online, a US rival, for $40m – part-funded by a £28m investment made by Verlinvest.

Both firms have thrived, but generally speaking there are good times and bad times to be a public company. 2005 was clearly the former. 2011 – coming out of a recession, with the threat of a double dip still lingering and a depressed market – is most definitely the latter.

Even when times are good there are pros and cons to being on the stock market, says an insider we interviewed. Executives, he says, are constantly having to weigh up the advantage of easy access to capital and finance against the demanding and costly requirement to publicly disclose the fine details of your business. In not so good times, disclosure is the very definition of washing your dirty laundry in public, he says.

But despite the recession Research Now and Toluna have performed well. Research Now reported half-year revenue up 24% in the months prior to being bought by E-Rewards. Toluna’s most recent set of results showed half-year sales up 164%.

The growth potential of these businesses excited the stock market back in 2005, and with both firms continuing to deliver, it comes as no surprise that private equity groups are wanting in on the action, says John Kearon, CEO of BrainJuicer, an online research firm that went public in 2006.

“Research Now and Toluna are both well run, successful growth businesses in a high-growth category,” says Kearon. “Over the last 18 months, as the public markets stalled, there’s been a huge amount of private equity money looking for a good home. Essentially, their perfect ‘play’ is a reasonably established, high-growth company, in a high-growth category, with the management capability to take a large injection of cash, acquire businesses and rapidly scale the business for an exit or refloat in three-to-four years time.”

In online research, “scale will be increasingly important,” says Kearon. But innovation also has the chance to thrive now that Toluna and Research Now have bought themselves some time away from the pressures of public life with the aid of private equity cash. Is this what so appealed to management?

Social media as a sample resource is going to be increasingly important – hence Research Now’s purchase of Peanut Labs, which recruits users of social and gaming networks to take part in surveys. George Terhanian, Toluna’s recently-appointed chief strategy and product officer, has also made clear his interest in using social media assets to produce deeper profiles of panellists to ensure better targeted surveys.

Both companies would also be wise to make investments in building up their mobile survey capabilities – developing apps and experimenting with the possibilities for geo-targeting surveys at smartphone owners. Cint, a technology company which runs an exchange through which smaller panel owners can sell access to their sample, has done just that, buying the app-based mobile research platform Thumbspeak.

“One of the advantages of being private is that you can take a longer-term view to growth,” says Andrew Cooper, a co-founder of Research Now who is now a partner in Verve, which builds customer advisory panels. “Being a public company means you have to deliver certain revenue and profit numbers, which might not be compatible with long-term growth. If you have a fast-growing business, it’s quite hard to explain to investors why most of the profit is being invested into making you grow quicker at the expense of apparent short-term gains.”

Now is the time for Toluna and Research Now to start laying the foundations for a future beyond the next several years.