TOO BIG TO IGNORE – HOW TO DEFINE THE ENTERPRISE VALUE OF AI AND BIG DATA FIRMS

Justus Wolff, Syte, Hamburg, Germany
Christoph Kocher, Syte, Hamburg, Germany
Julia Menacher, Syte, Hamburg, Germany
Andreas Keck, Syte, Hamburg, Germany

Published in

INTERNATIONAL JOURNAL OF STRATEGIC MANAGEMENT
Volume 18, Issue 1, p13-24, March 2018

ABSTRACT

Artificial Intelligence and Big Data companies (AI&BD) are already now key drivers for disruption in many industries and will change the way business works from its core. These companies possess very different financial metrics due to a high amount of intangible assets in form of data and algorithms and exponential economic growth potential. A conceptual enterprise valuation methodology for these firms is thus introduced based on three major adjustments for a modified DCF model: First, the growth phases are estimated as typical for young growth and data driven companies. Second, expenses for software R&D are treated as CapEx instead of OpEx to account for software/IP as intangible assets. Third, a base multiple derived from comparable peer firm transactions is modified with regard to the firm's specific AI&BD-specific value drivers. Specifically Data, Algorithm and Team as the major value drivers for AI&BD firms are considered. These adjustments result in changes in the enterprise value and are targeting an objective valuation result for AI&BD firms and shall thus provide a concept for more adequate valuations in the steadily growing AI&BD sector.

Keywords

Artificial Intelligence, Enterprise Valuation, Discounted Cash Flow, Intangible Assets, M&A


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