1. L & E R e s e a r c h
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Brett Watkins
An overview of the rapid changes happening in the focus group
facility industry, and what your options are in surviving these
perilous times
THEFOCUSGROUPFACILITYFUTURE:
OVERVIEW

2. INTRODUCTION
The following presentation outlines the challenges inherent in the focus group facility industry, and how rapid change is impacting our
world. There is a host of research on the commoditization of markets and the signs inherent when this is happening: L&E published a
paper on this and its relation to the focus group industry in 2010. The five signs of commoditization: deregulation; maturation of
product life cycle; technological innovation; increased regulation; and powerful suppliers, customers and increased competition, are all
present in the focus group facility industry, and are becoming more and more apparent.
One cannot pick up an industry publication without reading about the rapid change in our industry: keeping up with change will require
not only increased agility, but also significant investment in technology and the core operations of one’s business. “Doing what’s worked
before” will not continue to be successful: one must either adapt and change as the industry changes, or seek an exit. If exit is your
desired next step, this presentation provides food for thought and facts to consider: I recommend also reviewing L&E’s white paper,
“Facility industry consolidation”, for more information. Both are supported by a recent CASRO seminar on Merger and Acquisition
(M&A) activity in the market research space in 4th quarter 2012.
If after your review of these materials you wish to speak further and discuss your options and how working with L&E could be right for
you, we welcome the opportunity to help you evaluate your company’s future.
Warmly,
Brett Watkins
President, L&E Research

3. FOCUS GROUP INDUSTRY CHALLENGES
 Since 2007, half of companies offering marketing research “field services” are no longer in
business (data verified from AMA, MRA and Quirks).
 Advanced technology has made it easy to create sizeable databases quickly and inexpensively,
removing barriers to enter into the Focus Group Industry, as well as consolidating operations and
reducing overhead cost (i.e. fewer middle management).
 The Industry is becoming highly commoditized with less differentiation between facilities,
allowing clients to push for higher discounts. Examples of this include 10-15% discounts required
by the larger consulting firms and end clients, as well as streaming (e.g. FocusVision’s exclusivity
contracts on streaming through end client discounts).
 New products and services are competing with in-person qualitative research offerings. Advances
in online qualitative tools have begun eroding in-person research, and while in-person has seen a
bump in 2014, the long term trend is for this to continue. Independent facilities owners have
generally slipped behind the technology curve because of lack of investment in this area.
 Large multi-facility networks like Schlesinger, Fieldwork and Focus Pointe Global are selling
directly to Fortune 500 companies and promising discounts on services if they are used
exclusively.

4.  Large clients are placing more administrative burden on facility’s time by demanding more
compliance with their standard contracts and payment schedules (e.g. purchase order
requirements and usage of purchasing systems like Ariba; IT security requirements and data
security procedure questionnaires, etc.).
 Technology has allowed clients to ask for tougher recruitment in less time and expect fulfillment.
We will continue seeing shorter timelines but tougher specs.
 Declining response rates and the industry’s general apathy to this decline could bode ill for our
future. With response rates below 20% and continuing to decline, and the end client/consultant
industry not appearing interested in changing its processes, costs will continue to increase on
facilities to build and maintain engaged panels that are willing to participate in market research.
 Innovation in recruitment will likely be the fundamental game changer in the qualitative market
research industry: companies with large consumer databases and profiles (e.g. Facebook, Google)
will pose huge threats to our industry if they elect to pursue this space. Small and medium
businesses alike (which includes the largest in our industry) will be threatened should “larger fish”
elect to swim in our waters.

5. WHY CONSOLIDATE THE FOCUS GROUP FIELD INDUSTRY?
 Historically, as industries mature, the differences between brands diminish and pricing becomes
the main differential (becoming a commodity) forcing companies to accept lower margins or to
close their doors. This has been the trend for qualitative market research companies as well!
 Private Equity firms utilize extensive financial resources to consolidate industry sectors, integrate
them and then resell them at a higher profit once more efficient operations are developed.
Companies and financial investors pay a higher premium (multiple of EBITDA) for these
consolidated companies because they are more predictable in their performance (Public
Companies ratios of EBITDA and Revenue tend to be the gold standard). We are already
beginning to see with private equity’s purchase of Focus Pointe Global (and then of Delve).
 Past performance can help business buyers evaluate how a business will perform in the future,
but ultimately it is future profits and the risk associated with obtaining that profit that will
determine what a buyer pays for a business. Large, well established and profitable businesses
that have room to grow tend to gain the highest market interest and therefore…price!
 Technology will continue to drive down the cost of operations within the market research
industry and it is imperative that current strategy include an upgrade to a more standardized
system that both clients and owners can benefit from.
 Though individuals of Fortune 500 companies desire the personalized service of a small company,
their purchasing departments are increasingly demanding the reliability and consistency of a larger
organization.

6. Emerging Growth & Middle MarketVALUATION ANALYSIS
5 150 500 1000
Revenues
($millions)
Source: Middle Market M&A (2012)
Middle MarketSmall
Companies
Large
Companies
5.4MM
P O P U L A T I O N
300,000
2,000
15%
G D P
40% 45%
2-3x
V A L U A T I O N
4-11X
12x +

7. Highest Value
Service Business Exit Value
Small business 500k to
3 Millionin EBITDA:
Traditionally sold based
upon 2-3x recast EBITDA
Medium Size Business
3-10 Millionin EBITDA
-Traditionally sold at
4-6x recast EBITDA.
-More interest from
financial buyers.
-Less risky for investors
Large Business ^10
Millionin EBITDA
-Traditionally sold at
6-12x recast EBITDA.
- Ability to raise capital
Value Today
Premium Value

8. CONCLUSIONS
 Industry consolidation will continue: with the first presence of investment capital in the
purchases of FocusVision and Focus Pointe Global, we will continue to see greater investment in
marketing, business development and direct to end buyer contracts while internally processes
and systems are implemented to reduce cost. Small facility owners will not be able to compete
in these worlds and will continue to close their doors at the rapid pace we are seeing today.
 Focus Group facility longevity is in question with the advent of new technologies and possible
“killer app” companies like Google and Facebook that can surpass recruiting capacities of panel
companies like facilities.
 Multiples of EBIDTA are generally 2-3X for companies making around $500k - $1 MM profit ….all
facilities reviewed by L&E Research are making considerably less than this, and their numbers are
generally declining. Thus there is considerable risk in the purchase of these companies.
 Rising costs of overhead (rent, phone, internet, salaries) will continue to see margins shrink
without innovation: the inability of facilities to pass on costs to the client and the facility’s
inability to reduce other costs will continue to see the erosion of profits.
 We envision two options for small, independent facility owners: “riding the wave out” until you
are forced to close, our throwing your resources behind another firm investing in the industry’s
future, if seeing your company’s future continue is a priority.