Riverside Partners Acquires Calero: TEM in Transition

On September 13th, 2017, Riverside Partners, a Boston-based private equity firm, announced the acquisition of Calero Software from Clearlake Capital. Calero manages more than $6 billion of annual telecom, mobility, and cloud spend for more than 3,000 customers in 40+ countries and provides managed mobility services for more than 400,000 devices, making it one of the largest technology expense management solutions overall behind Tangoe’s $38 billion+ in technology expense management and Flexera’s $13 billion+ in software expense management. (Cass does not break out its telecom spend, but Amalgam believes it to be similar in scale to Calero.)

This blog covers Amalgam’s perspective on:

1. Why Clearlake sold Calero?
2. Who is Riverside Partners, a relatively new player in the TEM space?
3. What to expect from Calero going forward?

Why Clearlake sold Calero: This transaction is an exit for Clearlake Capital, which initially created Calero on December 9, 2013 by merging Movero, Veramark, and PINNACLE to bring together managed mobility, call accounting, communications lifecycle management (CLM), and IT asset management capabilities into a single company. Over the past three+ years, Calero has steadily brought on a mature executive team and consolidated its operations for increased efficiencies. In the process, Amalgam notes that Calero’s greatest successes have been in bringing on large enterprises seeking a structured and rapid onboarding process.

However, Clearlake sought to focus on larger opportunities after its bid for Tangoe earlier this year was not successful. Clearlake currently has over $4 billion in assets under management, including recent acquisitions of IT management solutions Concorde Solutions and RES Software for the Ivanti ITSM suite and acquisitions of SPS, Annese & Associates, and RGTS for IT service provider ConvergeOne. From Amalgam’s perspective, these are acquisitions that could have gone into Calero, since TEM can provide granular asset management and service management capabilities across a wide range of IT and is starting on a collision course with app and software management providers such as Concorde. But given that Clearlake was making recent acquisitions in Communications Lifecycle Management-related businesses and not adding them to Calero, the divestiture makes sense in allowing Clearlake to continue growing in areas where it has decided that consolidation and augmentation are more readily available.

In moving to Riverside Partners, Amalgam expects that Calero will be able to focus on more organic growth. This is not to say that Calero will not be augmented by acquisition: Amalgam believes that Calero will likely look at 2-3 acquisitions over the next 5-7 years to support expansions that may include managed services, software asset management, cloud service management, managed mobility, and/or security depending on opportunity and strategic direction. But Calero had to become massively larger to move the needle on Clearlake Capital’s portfolio whereas Riverside’s current fund allows for more patience.

About Riverside: Riverside Partners is a Boston-based private equity firm founded in 1989 and currently investing a $561 million equity fund, Riverside Fund V, L.P. Riverside typically invests in fairly mature companies in the healthcare and telecom spaces rather than speculative technologies. Although Riverside is new to the TEM space, it has previously invested in First Light Fiber and expanded it over time through acquisition. In addition, investments in Openforce, Loftware, and Bottom Line Systems demonstrate expertise in business models requiring a combination of high volume automation, detailed analysis, and compliance in dealing with contingent labor, supply chain labelling, and healthcare revenue, respectively.

Riverside typically takes an active role in supporting portfolio companies with a goal of providing value. Practically, this means that it is unlikely to see Riverside break out Calero into parts to “extract” value as some private equity firms are built to do and likely to see Riverside invest into Calero with the goal of enhancing current opportunities for organic growth. Despite a variety of market consolidation activities over the past couple of years, Calero remains a top independent vendor in technology spend under management. Amalgam believes that Calero has been somewhat distracted over the past year both in pursuing Tangoe and then in finding a purchaser afterwards. In landing at Riverside, Amalgam expects that Calero will be increasingly active in the TEM and mobility spaces.

What to expect from Calero: In general, the TEM industry should expect that both Calero and Tangoe, which finished its own journey in moving to Marlin Equity earlier this year, will become more aggressive in both their marketing and sales approaches now that their medium-term prospects and ownership are more stable. This activity will fill a vacuum in the TEM space that has recently made large TEM deals less competitive and easier for other TEM vendors to enter.

From Calero, expect to see increased product and service development over the next year and possibly see an acquisition. Calero is already a leader in TEM analytics and in bringing insights to telecom and IT managers. Amalgam believes that Calero will continue to lead in the network and mobility areas where the product is strong and expect to start seeing increased support for the cloud, both consisting of infrastructure and software as a service.

Finally, expect Calero to look towards global expansion. Calero has been relatively quiet in developing offices outside of the United States. With a consistent owner over the next few years, Calero can now plan for an expanded global footprint to support its current global customer base. This will allow Calero to compete against Tangoe more directly.

Overall, Amalgam remains bullish on Calero’s ability to execute. Its combination of Six Sigma operations, strong analytics, and combination of communications lifecycle capabilities remain robust. With appropriate acquisitions or partnerships over the next few years to add cloud, SaaS, and services capabilities, Calero will remain a market leader in Technology Lifecycle Management (TLM) and should be considered by large global enterprises seeking CLM and TLM solutions.