WHAT IS THE FALLOUT OF TEM CONSOLIDATION FOR ENTERPRISES?

By Greg McIntyre, CEO


It’s no secret that the Telecom Expense Management industry, or TEM, as it’s now known, has undergone massive consolidation in recent years. Tangoe, the largest TEM provider, has grown through a multitude of acquisitions and mergers which include Profit Line, Rivermine, ttMobiles, and others. After Tangoe’s NASDAQ delisting in 2017, private equity (PE) firm Marlin Partners LLP took the company private and merged with Asentinel. The firm recently acquired MOBI Wireless Management LLC. Another TEM firm, Calero, was formed by PE firm Clearlake Capital Group by merging Veramark Technologies, Movero, and PINNACLE. Calero then acquired additional companies including ComView and most recently MDSL. 

Fallout for Enterprises

These mergers and acquisitions have resulted in fewer firms to choose from. What is the fallout for enterprises as this occurs? We see three key areas: platform confusion, deterioration in support, and shift in business focus. This article explores each one.

Fallout for enterprises:

  • Multitude of platforms
  • Dramatic support changes
  • PE Firm direction and intent

A Tangle of Platforms

Unlike other mergers and acquisitions that add a tangible business or expand into additional markets, most TEM acquisitions add “more of the same”.  This means the merged firms now have multiple TEM platforms and processes to support. The larger TEM providers have anywhere from three to eight platforms performing the same overall tasks. To be an efficient and focused TEM organization, most of those platforms will have to consolidate. And while each platform may have the same intent, there are definitely unique differences. Determining which platform to keep and where to invest development takes time. Meanwhile, all platforms need to be supported to protect enterprises who use them.

It’s tough to manage multiple acquisitions and so many platforms. Sometimes there’s even directional confusion by the provider themselves. One provider spent years and a significant investment on the development of a new platform in an attempt to create a single solution to their multitude of platforms, only to scrap it right after an acquisition. And the acquired mobile only platform doesn’t offer the same expected capabilities. 

Of course, all of this creates confusion and disruptions to any client’s operation, ultimately costing those customers time and money.  Decommissioning of platforms are expected to occur and any transition to a different platform will be a major disruption for the customer. 

If you have a TEM provider in place, ask these questions

  • When will a transition to another platform and changes in process occur?
  • Which platform will the provider decide on? 
  • How well will all of the platforms and current processes be supported?
  • How much effort and time will be involved to transition?
  • What about training?
  • What about security?
  • What will happen with the existing data?
  • What are the process and workflow changes?
  • Does the platform support all services desired of a Procure 2 Pay (P2P) model?

Dramatic Support Changes

To gain economies of scale through any acquisition, support overlap will usually be eliminated. This can mean reduction of back office personnel, developers, technical support, account representatives, and of course management. As support overlap is eliminated, support staff may be concerned about keeping their jobs, which may affect service levels. From the enterprise side, there are additional questions:

  • Who will be my account representatives?
  • Where will support come from?
  • Will support operations be served from a different country?
  • Will they even know who we are?
  • What is support like at the acquiring company?
  • What will be the change in the support processes?

PE Firm Direction and Intent

Much of the TEM industry consolidation is now under private equity ownership. This type of ownership can enjoy the advantage of capital infusions where warranted. However, it can also bring significant downsides for customers, particularly TEM customers. 

Private equity firms by their nature, are investment firms in the business of maximizing their return on investment. Like a business flip, in other words. The primary objective is building financial value in their acquisitions to either 1) become a cash cow or 2) sell for a premium typically within four to seven years. The vast majority of PE owned companies are re-sold within 3-5 years, with the average holding period in 2018 at 5.3 years, according to McKinsey & Company’s Private markets come of age: McKinsey Global Private Markets Review 2019, using Prequin data.1

In either scenario, the intent will be to cut costs and maximize financial value. Cash cows typically mean cutting costs, investing only the minimal amounts needed to keep the company generating cash.

In the sale scenario, it will also mean changing the company focus to match the highest market valuation. For example, software firms (SaaS) typically have higher valuations than technical support companies. To shift to a SaaS focus, it may mean shifting to a single cloud platform and dramatically reducing or eliminating support to create higher valuations and profit. Off shoring call centers is one way to accomplish this, providing trouble shooting scripts based on a FAQ tree, rather than staffing with support personnel actually familiar with the core services offered. 

PE firms are in the business of finance. Compare this to TEM firms which are privately held being in the expense management business.

Private Equity Owned Private Ownership
Focused on financial returns Focus on building a business, growing and keeping customers
Pay themselves first (fees, distributions) Invests in long term of business
Primary interest in maximizing price company will bring in market Primary interest in growing company value to customers and place in market
Money Operations
Mid-to short term Long term


Takeaways

Mergers and acquisitions of TEM providers creates confusion and can cause disruption for their customers’ operations. Operational changes can cause significant disruption to enterprise customers. Examples are shifting to a different platform, and changes in support processes and delivery. 

Type of ownership may also affect the value of service. If the ownership is “not in the business” of expense management, is there a degradation of service delivery and business focus that may spill over to their customers?

If an enterprise sees that their provider may be shifting to a new platform, it makes sense to evaluate an alternative provider now. The disruption and a transition to a different platform with the same vendor takes the same due diligence, time, and effort as moving to a new TEM provider.

And wouldn’t life be better to work with a stable TEM provider that is solely focused on supporting their customers with experienced US based personnel through a single platform capable of managing multiple services and assets?

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 McKinsey & Company, Private markets come of age, McKinsey Global Private Markets Review 2019, p.25 https://www.mckinsey.com/~/media/McKinsey/Industries/Private%20Equity%20and%20Principal%20Investors/Our%20Insights/Private%20markets%20come%20of%20age/Private-markets-come-of-age-McKinsey-Global-Private-Markets-Review-2019-vF.ashx