The Definitive Guide to the Asentinel-Tangoe Merger: Marlin Equity Partners Agrees to Acquire Tangoe

Asentinel-Tangoe Merger brings together much of TEM's history.
Asentinel-Tangoe Merger brings together much of TEM’s history.

[Updated May 3rd with links to additional coverage from AOTMP, Blue Hill Research, Oracle Dispatch, StraTEM Consulting, and the Wall Street Journal]

On April 28, Marlin Equity Partners, an investment firm with over $3 billion in capital under management and the current owner of Telecom Expense and Enterprise Mobility Management vendor Asentinel, announced entering an agreement to purchase Tangoe for $6.50 per share for a transaction estimated at $242.6 million in cash.

This agreement is being structured as a merger. Tangoe is the market leader in Telecom Expense Management with oversight of over $34 billion in IT spend. Tangoe will be combined with Asentinel to create a company that managed over $38 billion in telecom and IT spend. This transaction is scheduled to close late in Q2 2017, pending all relevant conditions being met. With this merger, Tangoe CEO Jim Foy is expected to be CEO of the combined company and Asentinel CEO Tim Whitehorn is expected to become Chief Product Officer of the combined company. The combined company will be called Tangoe.

Why did this purchase happen?

To fully understand this acquisition, think about this through three lenses: the private equity interest in TEM, Tangoe as the 800-pound gorilla in TEM, and Asentinel’s capabilities both before and after Marlin investment.

Private Equity Interest in TEM

First, there has been immense private investment interest in the Telecom Expense Management space as can be seen from the following examples:

In addition, Tangoe had received significant investment throughout this time as a public company from private investors including Clearlake, Marlin Equity, and Vector Capital, a private equity firm well-known for its proactive and aggressive investment stance. And Asentinel went through its own private equity transactions to be covered later.

Tangoe as Market Aggregator and Public Company

Tangoe ($TNGO), as the market leader in Telecom Expense Management and a significant player in Enterprise Mobility Management, IPO’ed on July 27th, 2011 on the NASDAQ stock exchange and opened at $11 per share. Over the next couple of years, Tangoe was seen as a successful enterprise mobility vendor resulting in a peak value of over $25 per share and a market cap of approximately $1 billion dollars in October 2013.

After that, Tangoe’s stock price started to suffer as Tangoe took on the challenge of consolidating the platforms, sales, support, and solutions that it had rolled up over the past decade, including the assets of Traq, ISG, Internoded, Telwares, Profitline, HCL (Control Point Solutions), Symphony, Anomalous Networks, ttMobiles, Rivermine, and Vodafone Global.

After an earnings miss in August 2015, Tangoe’s stock moved into the single digit price range, making it an attractive acquisition and investment target with market cap roughly equivalent to revenue. This challenge was exacerbated in March of 2016 when Tangoe announced that it would restate financial statements from 2013, 2014, and 2015.

This restatement was followed by a tumultuous period in which Tangoe’s founder and CEO, Al Subbloie, left the company and a furious cycle of activity occurred amongst independent investors taking a variety of stances. This investment activity was leading to the potential for a private takeover, as Tangoe’s stock started to steadily decline and investors jockeyed for position.

As a result, Tangoe announced on January 3rd, 2017 that it had received two offers: one from Marlin Equity Partners for $7.50 per share and one from Clearlake Capital Group and Vector Capital for $7 per share. Both were significantly off the $25/share peak that Tangoe once traded at and, frankly, represented enticing offers for the potential of an optimized Tangoe that was still running at well over an estimated $200 million annual run rate.

AI has already mentioned Marlin Equity’s interest in TEM, but Clearlake Capital, as noted above, is also a major player through its ownership of Calero. Vector Capital has also been well known in private equity both for its activist stances and for its ability to make bets on companies with non-standard finances such as its SafeNet acquisition in 2007.

In combination with Tangoe’s inability to resolve its financial statements in a timely matter and subsequent delisting from NASDAQ, it was only a matter of time before one of the stated offers or another third-party offer came in to acquire Tangoe. At this price and with its current client list and revenue and public-facing challenges, this was a good time to go private and rebuild without dealing with the distractions of public information. In this case, going private is an opportunity to focus on customers and avoid the significant costs of being a publically traded company.

Asentinel’s Rapid Growth as a Marlin-backed Portfolio company

Asentinel has been a long-time market leader in the Telecom Expense Management space as well and has been known for having a top-tier platform, integrations, and broad carrier support including over 3,000 bill readers. Over the past couple of years, Asentinel has gone through its own private equity-driven transformation including the following transactions:

On January 12, 2015, Marlin Equity Partners announced the acquisition of Asentinel. Marlin Equity was an experienced investor in: telecom expense management, having been a prior owner of Rivermine; mobility as shown in owning Openwave Mobility; and financial performance management as seen in Longview and Tidemark.

On October 20, 2015, Asentinel acquired eMOBUS, which provided a mid-market managed mobility services solution to accompany Asentinel’s existing network and wireless capabilities.

And on June 2nd, 2016, Asentinel acquired Anatole, which was a significant move in further establishing Asentinel’s footprint in Europe. Anatole was previously the market leader in European Telecom Expense Management and one of the few TEM vendors in Europe that had established significant revenue across multiple countries.

Asentinel had already established many of the pieces needed to support its growth as a global market leader in the TEM space. With the acquisition of Tangoe, Amalgam Insights believes that Asentinel will continue to expand and will be able to take advantage of Tangoe’s experience in global bids, sales, marketing, mobility, and non-telecom related categories such as utilities, the Internet of Things, and general IT spend.

Was the Asentinel-Tangoe merger the right move?

AI believes that the Tangoe acquisition came down to effectively being acquired by Calero or Asentinel, two of its top competitors. Asentinel has long been known for the strength of its developers and existing platform, which should serve as a strength as Tangoe seeks to rationalize its TEM platform strategy once and for all. Asentinel’s development team has consistently produced on platform and software updates over the years and is seen as strong team in the TEM industry. At the same time, Calero also has supported a wide variety of IT spend categories, especially through its PINNACLE legacy.

Both Asentinel and Calero have experienced management staff and AI believes the two companies to be roughly equal in staff prior to the Tangoe acquisition.

AI believes that either company would have been a good landing point for Tangoe, but that Asentinel’s expanded footprint in Europe and developer background will serve as strong support capabilities in buttressing Tangoe’s existing capabilities.

AI believes that this acquisition will close in Q2 of 2017 and that Tangoe will retain its company name and current brand equity going forward. Pending a 30 day “go-shop” period where Tangoe will seek higher bids, Tangoe is expected to accept this bid.

Until then, Tangoe and Asentinel work as separate companies. That said, it is fairly obvious that any end users currently considering both Asentinel and Tangoe now have a much easier decision to make.

What’s next for Tangoe and the Telecom Expense Management industry?

As the largest vendor in Telecom Expense Management, Tangoe has a gigantic influence on this entire market. Hold on tight, folks, because I’ve got a LOT of recommendations across this market for all of you.

For existing Tangoe customers, this is a good sign. Tangoe has been understandably distracted for the past year by these issues that “matter, but don’t matter.” What I mean is that it mattered if Tangoe was private or public, whether the SEC-facing accounting numbers all matched up, and it mattered who the CEO was from a public-facing perspective. But none of this really affected the day-to-day delivery of telecom expense and managed mobility services. Now, Tangoe can stop spending money on compliance issues and get back to both optimizing its own shop and reinvesting money going to corporate consultants back into the platform and services.

And the Marlin-based acquisition will also be a boon in that Marlin used to own Rivermine, which is currently the platform that Tangoe is using for net-new customers. Based on AI’s experience, Rivermine’s and Asentinel’s platforms have traditionally both been among the most scalable and configurable solutions in the TEM market and both are based on Oracle database. Asentinel has experience supporting a wide variety of integrations as well, which should provide comfort to existing customers who may be worried about Asentinel’s capabilities and experience in enterprise deployments.

Although the future is still unknown from a platform perspective, AI believes that “Tangoe Matrix” is likely to end up being some combination of Asentinel and Rivermine as those two platforms come together from a roadmap perspective over the next couple of years with perhaps some front-end skinning for enterprise customers who require specific layouts and integrated functionalities.

From a support perspective, AI believes that Asentinel has consistently had retention rates above 95% year-over-year throughout the past decade, which is above average for the enterprise TEM industry as a whole and represents the reality of enterprise accounts where mergers and acquisitions will lead to software decisions that are sometimes made due to politics or larger infrastructure decisions. Asentinel has also expanded its industry experience year-over-year as well to become a horizontal solution with experience across all major verticals.

For potential Tangoe or Asentinel customers, the immediate challenge is to consider Tangoe and Asentinel as a combined entity rather than as separate vendors. This means considering both Tangoe’s experience with $34 billion in spend under management as well as Asentinel’s strong European footprint, but it also means some additional work in picking and choosing which aspects of each company will be most important for the enterprise.

Moving forward, AI believes that net-new enterprises currently looking at both Tangoe and Asentinel should choose the Asentinel platform moving forward, as it has been updated frequently with significant work towards enterprise application integration and mobility support.

For Asentinel, AI believes that the key to success in this integration is to get Tangoe’s staff trained on the Asentinel platform as soon as possible. Tangoe’s prior service issues have been exacerbated by the inability to standardize, not by a lack of capability or culture. Take advantage of the strong Tangoe brand, footprint, and TEM-trained professionals by bringing sales, marketing, and support staff up-to-speed on Asentinel ASAP.

In addition, AI will be looking closely at the Asentinel-Rivermine integration roadmap. Within Tangoe, there are a variety of interesting customized Rivermine implementations that support IT financial management, utilities, and other non-telecom assets and spend both from an invoice and vendor management perspective. AI believes that Asentinel-Rivermine back-end integration can be developed over the next 12-18 months, leading to improved functional support and forward-facing capabilities for enterprises as they start facing issues such as the Internet of Things, cloud computing management, and broad-based usage-dependent costs.

Tangoe has also been on the forefront of providing thought leadership to the TEM and mobility communities over the past decade as the market leader, by revenue. AI believes this is an important role that should be continued as the acquisition of Tangoe takes place in providing primary education to the enterprise market on the evolution of TEM, mobility, and the future of IT expense and lifecycle management technologies.

For other TEM vendors, this acquisition is a changing of the guard. Frankly, vendors have typically sold against Tangoe differently than they have sold against Asentinel. For the global vendors that should be going head-to-head most often against these vendors, such as Calero, Cass, Comview, Ezwim, ICOMM, MDSL, MOBI, MobiChord, and Telesoft, the competitive sell will have to be more nuanced than simply selling against Fear, Uncertainty, and Doubt. Competitive differentiation will be increasingly important in these head-to-head bids going forward.

AI suggests that it will be more fruitful to sell differentiated capabilities that match up well against both Tangoe and Asentinel. This gap analysis can go across technology, services, and footprint and will differ for each vendor.

For private equity investors, this outcome should have been expected. Over the past year, I had provided guidance to a number of investors that Tangoe was headed towards the route of becoming acquired and that there was some “financial adjustments” going on behind the scenes from a stock price perspective as PE firms sought to lower the price to acquire Tangoe. I am not saying anything nefarious was going on, but the stock price definitely stopped reflecting Tangoe’s projected future value a while ago and started to become more of a tactical tool for external investors. Once Tangoe’s market cap dipped below its annual revenue in mid-February, it was a strong purchase candidate that I could only salivate at as an outside observer.

That being said, the Tangoe acquisition does not represent the end of the road for investment in the TEM space. There are still several interesting acquisition and investment targets that have loyal enterprise clients, differentiated technology, and are maintaining growth consistent with the TEM market at large. AI believes that this market will continue to provide strong investment opportunities for the rest of this decade as investors position themselves for the future of managed mobility, IT management, IoT cost and service management, and cloud management.

The telecom expense and telecom lifecycle management market has been extremely exciting over the past couple of years and this planned merger only accentuates the need to evolve and scale. The game is on and Tangoe is still the company to beat, albeit with new Asentinel-based resources and capabilities. This is an event that defines the next era of global TEM. Enterprises, vendors, and investors must all take this merger into account or make inaccurate decisions regarding the future of the TEM industry. With this acquisition, the market leader in TEM can now focus on maintaining its considerable customer base and evolving its offerings for the future.

Additional coverage on this announcement comes from:

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