One of the key themes for telecom expense management (TEM) over the past couple of years has been M&A and boutique consolidation. Both Tangoe and WidePoint Solutions Corporation have completed multiple acquisitions. This is a testament to the activity in the industry, given that each of their acquisitions had previously acquired smaller vendors of their own. Companies previously content to leverage partners to fill gaps in service, capability, or vertical expertise are increasingly finding that, strategically, it is more valuable to own these capabilities. By combining wireless, IT management, sourcing, and consulting skills in-house, TEM companies continue to expand their competencies and market expectations. The most recent TEM M&A announcement will drive further changes.
On December 9th, the investment firm Clearlake Capital announced the creation of Calero, which aggregates the businesses of three veteran TEM organizations: Veramark Technologies, Movero, and PINNACLE. The consolidation is financed by Wells Fargo Capital Finance and Stellus Capital Management. Mooreland Partners provided mergers and acquisitions advisory services. Although all three TEM companies possess deep experience, each brought a different focus to its client base. As such, understanding the future of Calero, one must first look at the past.
Veramark initially started as a call accounting company in 1983 that tracked local and long distance usage in business organizations. With its call accounting software, Veramark supports market-leading voice systems including Cisco and Avaya. This experience provides Veramark with experience in supporting landline end user endpoints. In addition, Veramark acquired consulting group Source Loop in 2010 to strengthen its professional services. This burned their limited and critically important cash reserves, arguably not a smart decision by the management team. Through this combination of usage management, audits, licensed software, hosted software, and consulting Veramark provides its telecom expense management solutions.
Movero is the result of a 2011 rollup of three TEM-related companies: Integrated Mobile, Broadsource, and Movero Technology. Broadsource started as a TEM company focused on mid-sized organizations with spend in the range of $2 million to $20 million. Through the backing of Tripp Rackley, Noro-Moseley, and Harbert Venture Partners, BroadSource acquired managed mobility service provider Integrated Mobile in 2011 for $14.8 million. This acquisition opened up access to much of the Fortune 1000, who were existing Integrated Mobile customers. Soon after, this combined company acquired Movero Technology, a company focused on mobile help desk support. Since May 2011, this combination of software, mobility services, and help desk services has gone to market as Movero with a focus on wired and wireless TEM solutions for large enterprises.
PINNACLE has provided telecom management software since 1988 and was originally created by the CLEC PAETEC (since acquired by Windstream). Because of its carrier background, PINNACLE has traditionally demonstrated a wider focus than most of its TEM peers. This includes IT service management and vertical solutions for education, government, financial services, and healthcare. This IT financial management position is reminiscent of ComSci, an IT financial management company recently acquired by Upland Software in November 2013.
These three varied approaches leave Calero with the challenges of integrating operations. They must avoid the plight of Tangoe, which is struggling to be perceived with one public face as opposed to a fragmented network of acquired vendors. Tangoe must support their customers with one voice and one platform. Word on the street is that Tangoe cannot keep their project management teams on schedule, resulting in team churn every six months. At the same time, Calero has the opportunity to grow beyond some of the artificial constraints that TEM companies have placed on themselves.
Calero needs a rapid roadmap to consolidate the PINNACLE, Movero, and Veramark platforms. From an integration perspective, it is apparent that one of these firms is not like the other. PINNACLE and Veramark were both established TEM companies, but lacked significant growth potential based on current technology and service capabilities. Movero, on the other hand, quickly sought to increase both market share, new expense and support capabilities. For Calero to succeed, Calero needs to embrace Movero’s ability to acquire new employees and to dramatically transform itself.
From a capabilities perspective, the new Calero is able to bridge the gaps between enterprise endpoints and carrier management based on core competencies. For Calero to live up to its claim as a “Communications Lifecycle Management” company, it will need to support as wide a variety of enterprise communications as Tangoe. Veramark’s strength with supporting PBX usage, Movero’s experience with mobility, and PINNACLE’s experience with IT systems will help, but one important aspect is still in question.
As communications capabilities increasingly move to the cloud, Calero will need to provide some way of supporting Skype, hosted unified communications, and other SaaS solutions that provide some method of conferencing or calling. In addition, Blue Hill has recently covered the increasing importance of Amazon in providing new cloud services, which will need financial oversight similar to telecom expense management. Our research and face-to-face interviews with CIOs show IT is moving to the cloud and fast. This leads to a new set of expense management challenges as the traditional CapEx world of IT quickly changes to an OpEx and subscription world that is very similar to telecom. Currently, the PINNACLE side of Calero is probably best suited to tackle the impending challenges of cloud management. Still, the cloud will prove to be a key test of Calero’s ability to evolve even as it integrates in 2014.
In addition, Calero now faces a new set of challenges accompanying its sudden growth in size. From a revenue and future market cap perspective, Calero is now on par with the largest companies in the TEM industry: WidePoint ($90M) and Tangoe ($590M). This scale has provided challenges to TEM companies in the past, such as Telwares and Control Point Solutions. The creation of Calero will be a test for the TEM market to see if further consolidation will make it stronger or result in an unwieldy amalgam that forces customers to change TEM vendors yet again to find smaller and more nimble solutions.
The keys to success for Calero are simple:
- maintain and expand the current customer base;
- move to a consolidated platform as customers want and need one throat to choke;
- accelerate implementation times so that new customers are not stranded with an incomplete platform after 12-18 months
Calero must realize that this merger is only the beginning of its challenges. It is going down a road that many other TEM companies have travelled in the past and all of whom were devoured by Tangoe (Anomalous Networks, HCL Expense Management Services, Information Strategies Group, InterNoded, ProfitLine, Symphony Teleca, Telwares, Traq Wireless, TtMobiles Ltd., etc.).
Should Calero persevere, I expect an S1 filing to ensure investors, the management team, and employees see their returns on this strategic bet and sweat equity. However, to succeed, Calero must take George Santayana’s creed about history seriously: “Those who cannot remember the past are condemned to repeat it.”
FULL DISCLOSURE: On December 8, 2008 I was appointed to the Veramark board of directors and resigned my appointment on March 5, 2010. On Feb 1, 2011 I joined the Advisory Board of Avalon Global Solutions, which later was acquired by WidePoint Solutions Corporation on January 4, 2012.