Electric Guitar (LSE:ELEG) is a cash shell newly launched on the London Stock Exchange to create a business delivering content-driven digital advertising to global advertisers.
It is an unusual investment proposition, both because cash shells – also known as a Special Purpose Acquisition Companies (SPAC) – are still relatively uncommon in Europe, but also because of EG’s focus on digital advertising. This industry, though seemingly quite a niche investment proposition, has seen huge growth over the past decade: a report by GroupM, part of WPP Plc, says 2020 global digital revenues were worth a staggering $343bn, while 2021 revenues are forecast to be $397bn, an increase of almost 16%.
The sector is fast-growing, but it is also being disrupted by privacy laws, such as the European Union’s GDPR, which have forced advertisers to change the way they manage and store customer data.
To cut a long story short, the online advertising industry is moving away from the use of 3rd party data, where advertising is tailored to the consumer based on their web browsing history, towards 1st party data, which is data knowingly given to advertisers by a consumer when using their app or buying goods or services online.
Winds of change blowing through online advertising
Change is being driven by the web browser giants. According to Electric Guitar, Safari and Firefox, which in 2019 accounted for approximately 24% of the web browser market, have already blocked 3rd party data. Google Chrome, which in April 2021 made up more than 64% of the web browser market, announced plans in January last year to phase out support for 3rd party cookies in Chrome within three years.
This is not good news for the traditional media agencies, who over the past five years have seen the value of their business model eroded by companies such as Stagwell and S4Capital, which produce ‘digital native content’ tailored for a range of digital media. Not all of the traditional media agencies can readily adapt to the new digital ecosystem, while newcomers will be looking for investment capital. For EG, this has opened an investment opportunity.
The importance of 1st party data is that it is ‘personalised’, in other words it consists of data that identifies the consumer. As under privacy laws personal data cannot be sold on, requiring advertisers to delete the customer data they have acquired, greater emphasis is therefore placed on building a relationship with the consumer.
If the personalisation is not done properly, consumers may not engage. Not surprising, then, that management consultant Winterberry says 60% of advertisers are planning to spend more on obtaining 1st party data.
How to benefit from the rising tide of digital media
As EG says: “For this to happen, advertisers will need to maintain an effective data relationship with their clients. This will be defined by transparency, control and value amongst other measures. Key to this will be data science, bespoke content development and command of digital media skills.”
Which is where Electric Guitar believe they have the edge. As their presentation says: “Electric Guitar are digital and data specialists, and data drives personalisation. So, we will benefit from the rising tide which is driving the valuations of the newcomers, and that’s not going to stop any time soon.”
CEO and founder John Regan says: “There are many examples of personalised websites, from Amazon to Netflix, in fact most online retailers offer some level of personalisation. But there are very few examples of personalised advertising. Personalised advertising or more correctly a ‘fully personalised brand experience’ is the next stage in the digital marketing evolution.”
With the right price and the right targeting, personalised advertising would offer consumers the products they are looking for, rather than those they have just bought, adverts for which follow them around the internet.
Electric Guitar believe they have identified an opportunity to invest in smaller advertising agencies in the advertising sector that have been unable to source the investment finance necessary for rapid growth. Electric Guitar says: “Given that capital can be difficult to access for such companies, the directors believe that there is an opportunity for the suppliers of such capital to offer viable funding solutions to these companies in order to allow them more rapid expansion.”
What is Electric Guitar looking to acquire?
The Directors believe that the target businesses “will be attracted by the opportunity to hold an interest in a company that is listed on the Official List, with cash, access to capital markets and the know-how to develop the business.”
For private companies, the advantage of selling to a SPAC is that it expedites their route to a listing on a stock exchange without having to go through the costly and time-consuming IPO process, since they are merging with an already existing public entity. Electric Guitar says the aim is to create a trading business, rather than an investment entity.
The Electric Guitar team
The critical ingredient in a cash shell is the team of directors, with their combined skills, experience and network of industry contacts.
The team behind Electric Guitar is led by John Regan, founder of five businesses (including Electric Guitar) specialising in data-driven marketing optimisation. The other directors are corporate lawyer John Hutchinson, an entrepreneur and experienced non-executive director with innovative and growth orientated technology companies and Luke McKeever, who has a long international experience in senior management roles at marketing data and technology companies, and who has become a respected thought leader in the industry.
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