Key Stakeholders: Chief Information Officer, Chief Financial Officer, Chief Accounting Officer, Controllers, IT Directors and Managers, Enterprise Mobility Directors and Managers, Networking Directors and Managers, Software Asset Directors and Managers, Cloud Service Directors and Managers, and other technology budget holders responsible for telecom, network, mobility, SaaS, IaaS, and IT asset and service expenses.
Why It Matters: The race for IT spend management consolidation continues. The financial management of IT is increasingly seen as a strategic advantage for managing the digital supply chain across network, telecom, wireless, cloud, software, and service portfolios.
Top Takeaway: The new combined business with over 800 employees, 3,500 customers, and an estimated 2 million devices and $20 billion under management both serves as legitimate competition for market leader Tangoe and an attractive potential acquisition for larger IT management vendors.
[Disclaimer: Amalgam Insights has worked with Calero and MDSL. Amalgam Insights has provided end-user inquiries to both Calero and MDSL customers. Amalgam Insights has provided consulting services to investors and advisors involved in this acquisition.]
About The Acquisition
On November 19, 2019, MDSL and Calero Software, two of the top three market leaders in the Technology Expense Management (TEM) space, announced plans to merge into a single company. As part of this merger, Oak Hill Capital and Riverside Partners (already Calero’s lead financial backer) are lead investors in a growth recapitalization investment and the combination of MDSL while Sumeru Equity Partners continues to be a significant investor in this combined company. This merger is scheduled to close late in Q4 or early in Q1.
The combined company’s CEO will be Charles Layne, currently CEO of MDSL, while Scott Gilbert, COO of Calero Software, will be President of the combined company and current Calero CEO, Joe Pajer, will be on the Board of the combined business. Steven Kaplan, General Partner at Riverside Partners, will serve as Chair of the combined company while Sanjeet Mitra of Sumeru Equity Partners and MDSL’s Board will have a Board seat at the new company.
And to give an idea of additional stakeholders, here are additional advisors quoted from their press release: “William Blair served as financial advisor and Kirkland & Ellis served as legal advisor to MDSL. Choate served as legal advisor to Calero and Riverside. UBS served as financial advisor and Paul Weiss as legal advisor to Oak Hill. Transaction financing is being provided by Golub Capital.”
Both Calero and MDSL were scheduled to be profiled as TEM Market Leaders in Amalgam’s 2020 TEM Market Leaders SmartList, an upcoming report focused on Technology Expense vendors with global experience, and either over 100,000 devices under management or over a billion dollars under management. Both Calero and MDSL met these criteria easily as they battled for the #2 position in terms of market share and spend under management. With this merger, the question of who holds that second position in Global TEM is now well-settled. However, this merger should be seen not only in context of the most immediate competition of Tangoe, Cass, Sakon, and Upland, but also in comparison to the bigger picture of managing the 1.4 trillion+ dollars of IT managed by global enterprises with more than one billion dollars in revenue.
About Calero
Calero Software was created from the merger of Pinnacle, Veramark, Broadsource, Integrated Mobile, and Movero. This combination of IT management, telecom expense, call accounting, enterprise mobility, and help desk capabilities made Calero a strong player in managing the lifecycle of enterprise communications as well as supporting managed mobility services. Prior to this merger, Amalgam Insights estimates that Calero had over $10 billion in technology spend and roughly 2 million devices under management, making it the second-largest TEM vendor, just barely beating out MDSL and Cass Information Systems.
Calero had a strong US foundation based on its foundational companies and acquisition of Comview and was building out its European footprint with acquisitions of A&B Groep and Veropath, two of Amalgam Insights’ top five European-based TEM companies prior to acquisition. For Calero, this merger both increases scale and accelerates geographic coverage, as MDSL’s geographic footprint closely mirrors global financial centers across Europe and Asia.
About MDSL
MDSL is a global TEM provider based on Phoenix, Arizona with offices in New York City, Orlando Florida, the United Kingdom, Hong Kong, France, and Japan. It has grown both organically and through acquisitions including Telesoft, a significant TEM provider with a United States focus.
MDSL is unique in the Technology Expense space in that it has a significant business associated with Market Data Management, which is based on financial data subscriptions used in financial services. From a technical perspective, this secondary focus has always been interesting from Amalgam’s perspective because many of the tracking and subscription management capabilities associated with market data can also potentially be used to manage cloud Infrastructure, Software-as-a-Service, and third-party data sources of all types, making this a valuable capability to productize as IT shifts towards a cloud-centric model. MDSL has pursued cloud expenses this year, starting with its February 2019 General Availability release of its Cloud Services Expense Manager solution to control infrastructure, software, and platform licensing and subscription costs.
In addition, MDSL currently manages $12 billion in technology spend, including both financial data and information technology. Amalgam Insights believes that a significant portion of this spend consists of financial data subscriptions, as MDSL is the market leader in managing a market which consists of approximately $4 billion in annual spend.
Understanding the Acquisition
The merger of Calero and MDSL does the following things.
It helps each vendor to close gaps in its offerings. Calero faced significant work, even after its European acquisitions, to get the global footprint that MDSL and Tangoe had. MDSL’s greatest strengths are in cloud and landline telecom management, but they were seeking to bolster mobile capabilities to match Calero and Tangoe. With this merger, both companies will have solved their greatest challenge if they can effectively merge into a single organization.
It puts board leadership in the hands of the investor most experienced in telecom and IT infrastructure. Sumeru Equity Partners, MDSL’s financial backer, has a variety of technology investments in place, but analysts such as myself wondered how the initial MDSL investment would conflict with SEP’s investment in Software Asset Management vendor Snow Software. From the external perspective, this seemed somewhat conflicting in nature as the next step for telecom expense and technology expense vendors that I had been proposing since 2013 was to move towards software and the cloud.
In this light, it was interesting to see whether SEP was going to bring Snow and MDSL closer together or whether each would get the room to grow independently and compete in the Software as a Service management space over time. With this merger and the choice of Calero’s Chair as Chair of the new board, this decision looks a bit clearer.
It adds a financial partner with strong mid-market rollup skills. Oak Hill is not as focused on technology as Riverside Capital or Sumeru Equity Partners. However, Oak Hill does have experience in funding and selling a variety of services companies that consist of multiple branches and entities, which should be useful both in managing the combined company yet-to-be-named and for handling future acquisitions.
Wait, future acquisitions?
The reader may be thinking that this combined company is already 800 employees with over $20 billion in technology spend under management, which now makes it larger than #3, #4, and #5 combined (Cass, Sakon, and Upland Cimpl) from a pure tech spend perspective. And this new company still has to reconcile all of its platforms across its customer base. Shouldn’t this be enough of a challenge?
The issue is that this combined company faces challenges both from its traditional competitors and new players from the cloud world. For instance, Zylo has rapidly grown to manage over $10 billion in SaaS spend and competes with with the likes of Flexera and ServiceNow as well as G2 Siftery, Coreview (which just acquired Alpin), Cleanshelf, and Blissfully. In the Infrastructure as a Service space, CloudHealth by VMware, Azure Cost Management (through the Cloudyn acquisition), Apptio Cloudability, and Cloudcheckr have all passed $3 billion in annual spend under management.
In addition, third-party data and the Internet of Things, which the combined company is already expert in managing as expenses, are just starting to become an important capability in the general enterprise world. These expense categories that are growing at 25% or more per year are all massive opportunities from expense management, service monitoring, and managed services perspectives that may require additional investment.
Questions to be considered
As end-users continue their due diligence of Calero and MDSL, Amalgam Insights provides the following guidance and suggestions based on initial inquiries.
Ask about platform support and commitments to support staff for your platform. This combined company is currently supporting Calero, MDSL, and Telesoft as major platforms and has been working on platform migrations for Comview customers. For this merger to work, this company needs to provide solid timeframes and expectations on platform maintenance or migration.
How quickly will Calero MMS be available to MDSL customers? Amalgam Insights considers Calero’s Managed Mobility Services capabilities to be an upgrade on MDSL’s native capabilities and believes that this will be a boon for MDSL customers considering Managed Mobility Services in 2020.
Expect competitors to push FUD (Fear, Uncertainty, and Doubt). With this merger, this combined company will now face much of the same competitive marketing that market leader Tangoe has faced as a large, private-equity owned company growing through acquisition.
Expect further acquisition. Vendors currently branding as “Technology Expense Management” are still managing only a small percentage of the enterprise technology footprint and are often ignoring software, platforms, data and analytics investments, IT maintenance, and other IT areas. CIOs and CFOs do not want 5-10 niche solutions each managing a single area of IT: they want a single vendor platform to manage costs. Vendors that develop products to support executive preferences rather than their own legacy business models will be the long-term winners.
In addition, there are a number of niche TEM vendors that have specific expertise in Big Data, Robotic Process Automation, advanced Optical Character Recognition, Machine Learning, fiber and networking, Internet of Things, and Cloud Services as well as vendors with specific geographic and vertical expertise that still are attractive acquisition targets.
Clients with any further questions regarding any of these companies, trends, or other topics requiring future-facing guidance are welcome to contact us at Inquiries@amalgaminsights.com. To become a client, please contact us at sales@amalgaminsights.com to get started.