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Earlier this week I had the opportunity to sit down with Kore CEO, Alex Brisbourne, and hold a quick conversation about Kore’s pending acquisition of Wyless Group Holdings and all operating subsidiaries.
Backed by investors, which include private equity firm ABRY Partners, Kore has been on a mighty tear as of late, acquiring Jazz Communications and RACO Wireless prior to making the move on Wyless, in an all-cash deal, which is scheduled to close in Q2.
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There’s a new sheriff in town?
We believe that this acquisition makes Kore the largest MVNO and managed service provider outside of a handful of tier 1 MNOs, with an estimated 6M connections and $170M USD in revenue. Only the largest of MNOs have more connections than Kore now has, and few have the revenue, as many of these MNOs have built their business units on the foundations of cheap wholesale connectivity deals. On the MVNO front, only Aeris challenges the new Kore in terms of connected endpoints; however, we believe Aeris lags significantly in terms of total revenue.
What the acquisition means for partners and customers.
Kore’s acquisition of Wyless is also important for other reasons. First, the Wyless platform Porthos is currently being used as the CDP of choice for T-mobile USA. At a recent Morgan Stanley conference, T-mobile CFO, Braxton Carter, hinted at an increased focus on M2M as the company loosens its focus on wholesale business with traditional handset focused MVNOs.
With direct connections to AT&T, Vodafone, Verizon, T-mobile (and DT), Telefonica and others, Kore has positioned itself as a go-to company for connectivity. It caught the vision of the eSIM years ago and, through its partnership with Gemalto, would like to leverage the management benefits of the eSIM to be seen as a legitimate option to tier 1 MNOs.
Next, having significant assets outside of the US, Wyless helps Kore with its bid to become a legitimate powerhouse outside the United States. In addition to having acquired Aspider in the Netherlands and Wyless TM Data, which is one of the few non-MNOs with success in the Brazilian market, this moves Kore’s geographic footprint from an estimated 87% in North America to a more balanced 77%.
Inside the numbers.
Every week for the past 23 weeks, someone has asked me about the “Wyless book” being on the street. While I never saw the book, our team has spent time doing a vertical market breakdown of the Wyless customer base. We then made assumptions around values of each of these deals. Additionally, we factored in platform-only contracts, churn rates, and several other variables. And while we cannot comment on things under NDA with outside parties, our own analysis shows that Kore probably spent somewhere near 3.5x or 4x revenue for Wyless.
With close to a million connections in the US and another 300,000 outside the US, we believe Wyless had revenues in the $40-50M range. That puts the acquisition somewhere near $150-160M.
What does the acquisition mean for the industry?
For several years now, I’ve listened to Kore CEO, Alex Brisbourne, wax poetically about investment in tools for clients or the reasons behind certain acquisition targets. And quite frankly, some of it confused me. But combined with the direction of some of the competitors in the space, what I’m now seeing is the transformation of a company from a transaction-based, connectivity-driven model to a Software-as-a-Service model, which includes professional services and connectivity.
I think one needs to ask himself how much different is this than the vision at Jasper. And given Cisco’s recent Jasper acquisition for $1.4B plus retention bonuses, which had a 15+ multiple, well…
Who could potentially benefit the most from a Mega-MVNO like Kore?
It’s no secret in the US that Cable MSOs have been ramping up their business sales efforts. Large MSOs want to be able to provide full service offerings to enterprise customers, first with voice and data connectivity, then with a full suite of security and other managed services.
Look at Comcast Business’ acquisition of Contingent and subsequent announcement of ramping up their enterprise sales team. Comcast wants to fight on equal terms with industry heavyweights AT&T and Verizon for business customers. What is not certain is when they will want to grab a slice of the IoT pie, or how.
By providing carrier-agnostic wireless services through an eSIM, MSOs could potentially white-label wireless services and be a strong sales channel for Kore.
What’s next? Is this enough?
When we pull the covers back and look at the new Kore under the light of day, while Brisbourne and team should be applauded for taking the risk to pull off three fairly complicated acquisitions within two years, some fairly obvious areas for improvement exist. First, gaining greater share outside of the US market, specifically in Asia. It’s true Kore will be able to slowly grow the Aspider business in Europe, and now has a strong foothold in Latin America, however Asia is a wide open bonanza and we believe the way to the market is through acquisition or a major OEM partnership.
Next, BSS/OSS transformation for wholesale partners. It’s no secret that SI’s and Distributors want to participate in the market, they just don’t know how to do it correctly. Bifurcated billing, remote activation, providing bill-on-behalf offerings which include a complex rating engine are all must haves. Even companies like Verizon are looking outside their own OSS/BSS platform to third parties to provide these services to and on behalf of their VSP/VPP partners. Kore could differentiate itself here.
And finally, development and deployment help. While Kore acquired a great development team via the Position Logic assets of RACO, it currently needs to grow its developer organization. Based in the Dominican Republic, the development team has a few dozen really strong M2M developers, but probably not sizable enough of a team to put a dent in some of the industrial and enterprise IoT projects being rolled out by the “FORTUNE-ate” few. When I spoke with Brisbourne, he assured me that he was pouring resources in that direction, but they also need partners like Solstice Mobile, that has a team of over 250 geeks writing code on some fantastic IoT projects today.
Finally, deployment help is a must. Almost no one is thinking about having an army of assets on the ground, looking to connect X to Y in order to gather data from nodes 17, 18, 23, and 25-96. While AT&T and Verizon have armies of mini-vans on the streets with their logos plastered on the side to light up a smart-home, who hooks up a well-head monitoring solution in Cotulla, TX? How does Ernie Jones Trucking in Truman, MN get hardware connected to its trucks to provide both Track and Trace and Hours of Service capabilities? And what happens if these assets needing connectivity are in 5 states, 3 countries and 8 time zones? Who are you going to call? Geeksquad?
Final Word
Kore + Wyless looks to be an exponentially better company than Kore without Wyless. Brisbourne is putting together a complex company designed to provide enterprise with what they need. But as far as he’s come over the past two years, much more could be done in order to build a true global powerhouse. Look for more investment and a little tweaking from his team in the coming months. And for you gamblers out there, I’ll set the over/under on another acquisition in less than 7 months.
Image source: cutedogblog.com