5 Stages of The Technology Expense Management Market (re: Calero Acquires Veropath)
In my recent Market Milestone, Calero Acquires Veropath to Bolster its Global Role in Technology Expense Management, I made a quick comment about Veropath as an “accretive acquisition target.” But then I realized that I hadn’t explained what that meant from an Amalgam perspective.
From Amalgam’s perspective, the Technology Expense Market (aka Telecom Expense Management, although these solutions now regularly manage a wide variety of IT assets, services, and subscriptions) roughly breaks out into companies of five sizes, each with capabilities that could be considered “accretive” to larger organizations. I should add that there are a number of additional TEM companies that are at these sizes, but do not fit these profiles. Outlying companies might be very profitable, stable, and good providers, but are not typically considered great acquisition targets.
The first size is those of 1 – 10 employees. These are companies that are usually good at a specific task or have a single product that is custom-suited to managing a specific capability, such as automated invoice processing or rate plan optimization or network data management. The companies in this space tend to have a combination of specialization and subject matter expertise from a technical perspective, but lack the support staff to manage a large number of clients. These are a combination of technology acquisitions and acquihires.
The second size is 10 – 30 employees. These Technology Expense Management companies have found a specific geographical, market, or service niche and tend to have some combination of technology and services. There is a long tail of TEM companies in this category that lack the scale to go national, but may have built strong geographic, technical, or process management capabilities. However, these companies typically lack the sales and marketing engine to expand beyond their current size, meaning that further growth will often require outside capital and additional investment in revenue-creating activities.
The third size is roughly between 30 and 75 employees. At this size, the TEM vendor has found a strong go-to-market message and is supporting both mid-market and enterprise vendors regularly. These vendors have built their own platform, have a significant internal support team, and typically have a strong sales leader who is either the CEO or a VP of Sales. At this point, Amalgam notes that the biggest challenge for these vendors is creating a management team empowered to make good decisions and in letting go of decisions as a CEO. This management challenge is quite difficult to surpass, both because it adds a lot of complexity to the business with very little immediate benefit to the CEO or the firm’s employees. However, at this scale, TEM businesses are also a good target for acquisition as they have built out every business function needed to be a successful and stable long-term business. Roughly speaking, these companies tend to have about $100 million to $500 million in spend under management and run as stable, profitable businesses. There are a number of strong TEM vendors in this space including, but not limited to, Avotus, Ezwim, ICOMM, Mobile Solutions, Network Control, SaaSwedo, SmartBill, Tellennium, Valicom, vCom, VoicePlus, and Wireless Analytics
The fourth size is between 75 and 1,000 employees. These TEM companies are rarely acquired and start becoming the acquirers of other TEM companies because they have successfully built an organization that can scale and run multiple business units. At this size, TEM companies start to manage over a billion dollars a year in spend and tend to either be publicly traded or backed by private equity. And at this point, TEM companies start running into adjacent competitors in markets such as Managed Mobility Services, SaaS Vendor Management, Cloud Service Management, IT Asset Management, and other related IT management areas. This is an interesting area for TEM because, after several years of watching Tangoe acquire businesses at this scale in the early 2010s, multiple new vendors appeared at this scale in the mid-to-late 2010s. Currently, Amalgam considers Calero, Cass, Cimpl, Dimension Data, MDSL, Mobichord, Mer Telemanagement Systems (MTS), One Source Communications, Sakon, and TNX to be representative of vendors of this size of large TEM providers.
Currently, the fifth size of 1,000+ employees is a market of one: Tangoe. This company has grown both organically and acquisitively to manage over $38 billion in technology spend, making it roughly six times larger than its nearest competitor. At this size, Tangoe focuses on large enterprise and global management challenges and is positioned to start pursuing adjacent markets more aggressively. Amalgam believes that there is sufficient opportunity in this market for additional firms of this scale, however, and expects one or more of Calero, Cass Information Systems, MDSL, or Sakon to leap into this scale in the next three-to-five years.
So, when Amalgam refers to “accretive opportunities” in the TEM space from an acquisition perspective, this is the rough context that we use as a starting point. Of course, with the 100+ firms that we track in this market, any particular category has both nuance and personalization in describing individual firms. If you have any questions regarding this blog, please feel free to follow up by emailing firstname.lastname@example.org and if you’d like to learn more about what Calero has done with this acquistion of Veropath, one of the largest UK-headquarted TEM vendors, please download our Market Milestone available this week (or as supplies last) for free.