The rollup is still underway. On Tuesday, November 11, KORE Wireless announced its purchase of RacoWireless. Recently, Boston-based Private Equity Firm, Abry Partners purchased a majority stake in KORE. With Abry’s financial backing, KORE claimed its first acquisition, and it is speculated that more are coming. KORE and the lofty ambitions of becoming a global IoT company of scale offering complete, end-to-end M2M/IoT solutions. And initial indications are that KORE management is well on the way to achieving that goal.
KORE is looking to be perceived alongside Tier 1 global carriers such as AT&T, Telefonica, and Vodafone when enterprises sift through partners for M2M and IoT solutions. KORE is betting that global enterprises will look for one company with integrated network choices rather than cobbling together global coverage by working with a patchwork of regional network operators or depending on a single operator using roaming agreements. KORE touts on its website that it, “Provides the Best Carrier Connectivity Solutions - Even Better than the Carriers Themselves.”
Sporting network connectivity agreements from AT&T, Sprint, T-Mobile USA, Verizon, EE, Optus, Rogers Wireless, Deutsche Telekom, Telefonica, Vodafone, Iridium, and Inmarsat, KORE believes it has the relationships, connectivity agreements, expertise, and financial backing to make this one-throat-to-choke vision a reality.
The combined KORE entity has over three-and-a-half million connections, putting it squarely in the top 20 largest M2M service providers on the proprietary JBA Global Carrier Cellular Connections Chart. We believe the combined entity is roughly the size of wireless powerhouse Deutsche Telekom (less T-Mobile USA).
Risks:
The success or failure of an acquisition is in the planning and integration. Integration is a risk that threatens the success of any acquisition in any industry. In the case of KORE & Raco, integrations involve people, platforms, process, and most importantly customers.
People:
By people, we mean the employees of both organizations. Any acquisition requires deftly managing fears, personalities, and politics. One of the benefits thrown out in acquisitions like these is always, “economies of scale.” From a personnel standpoint, that means eliminating redundant positions. Due to the nature of IoT and the value of IoT talent, it is likely most all personnel in “IoT skill positions” such as application development, business development, network operations, and professional services will be retained to continue to grow and scale the business.
Much of the value in IoT companies is the human capital and their know-how. However, generic administrative functions often see job elimination in mergers. No matter the assurances given in announcement speeches to the troops, there is always fear among the ranks in any merger about job security that must be managed.
Much like a blended family, there is a blending of personalities and cultures. There is always some level of political jockeying, especially by “type A” personalities. These high achievers didn’t become successful in IoT by being wallflowers. Are new positions seen as promotions or demotions? Will these personalities view other high caliber executives as competition or additions to the team? Managing the integration of people is much more an art than a science.
Platforms:
KORE has PrismPro connectivity while Raco has Omega Management Suite connectivity platform, Position Logic location based platform, and Omega Dev Cloud application enablement platform. Additionally, both companies have their own asset tracking, fleet telematics, and other vertical solutions. To achieve the economies of scale nirvana, these platforms and solutions will need to be collapsed and consolidated to lower network operations and support complexity and reduce costs.
Collapsing platforms into one is not an easy process. Over a decade ago, I was part of a management team responsible for rolling up several of our competitors and integrating them all into a new organization. In this instance, technology was a big factor in our failure to execute. We had to manage multiple UNIX and Windows environments while keeping customers with live environments happy. But in speaking with KORE management last week, they are confident that there are more similarities than differences and will not have the same challenges I experienced.
Processes:
Each company has built processes to manage its businesses. Just like the platforms were never meant to cohabitate, neither was the processes used to manage company operations and customers. Critical processes include billing, customer on-boarding, and network operations.
Customers:
Will customers have to suffer through bumpiness during the integration process? Will they have to migrate platforms? Do they see any benefits such as reduced pricing? Will some customers inevitably fall through the cracks? Relationships are critical to attracting and retaining customers. Will customers become estranged should they lose relationships they have come to value and depend upon due to staff reductions?
The Goal of this Transaction: Global Scale
How much scale will it require to compete globally? Is being in the top 20 big enough to be considered as having global scale? Both companies are primarily North America centric, though KORE has tentacles to Latin America, Europe, and Eurasia. Global scale will require a global presence, including a global staffing for sales and support, which is a very expensive proposition. Today’s press release begins, “As the first step in its broader strategy,” so there will be more to come. Will KORE look to buy other MVNO’s and/or connections outside of North America to achieve scale and presence? It would certainly appear that way.
KORE’s view:
We have talked to both organizations and they believe they have the best team in the industry in place to handle strategy, additional acquisitions, day-to-day operations, and sales and marketing. Both companies have experience successfully integrating acquisitions over the past year with KORE’s purchase of Jazz Wireless and Raco’s purchase of Position Logic.
From a technology standpoint, their due diligence showed their platforms were similarly architected and based on the same underlying technology platform. They believe this reduces the complexity of technical integration.
For every action there is an opposite and equal reaction. Ponder these questions:
- By definition MNO’s own and control their own networks. By definition MVNO’s do not. MVNO’s will always have to react to MNO’s. How are the MNO’s going to react to KORE’s ambitious plan? Will carriers see it as competitive threat or another channel? Will it blur the messaging on the Tier 1 carriers Global SIM value proposition?
- Arbitrage? Could an arbitrage play between rate plans be a source of income?
- We believe that companies like Jasper Wireless have similar ambitions (global scale and top-tier enterprise clientele), however they may be employing a much different strategy - a software based solution to own the global enterprise customer. Does this transaction help push their much discussed IPO to fruition? Jasper currently does not offer complete productized IoT solutions and instead focuses on connectivity and being the “on switch to the Internet of Things”. To remain competitive will they use their war chest to broaden their platform and/or offerings, either through internal development or acquisition? Does KORE’s bold move force them to unveil what they have been working on behind the curtains? Or does the potential market disinter mediator get disinter mediated themselves?
- Will this start an MVNO arms race? If you own a successful IoT MVNO business, the good news is property values just went up in the neighborhood. Perceived value is in the number of customer connections.
- Will this transaction be the impetus that pushes other Private Equity firms to do deals they have been studying in the IoT space?
- Is this the beginning of the end for carriers with M2M ambitions? How long can carriers support M2M organizations with sales, marketing, and product development costs without the numbers to pay for it? Do carriers turn to companies like KORE and become dumb pipes? Or will carriers sweep in and begin to do their own rollups in a defensive move?
- Finally, is it about the platform and enablement services, or the number of connections?
- Does the next wave of rollups begin by purchasing M2M application providers? We’ve already seen other private equity firms such as Vista pour money into Omnitracs and XRS to create scale.
For answers on these or other questions, contact us at [email protected]
James Brehm & Lawrence Latham, James Brehm & Associates
Edited by
Stefania Viscusi
