I’m fond of acquisition news. Corporate acquisitions can serve as handy checkpoints for the state of the involved industry, since they by definition require companies putting their money where their mouths are. See for example Huawei’s recent purchase of Neul, whose reported valuation was a healthy reality check amid the otherwise overdriven IoT hype narrative.
Now we’ve got another significant M2M/IoT acquisition in KORE Wireless (aka KORE Telematics) taking over RacoWireless. The buyer could be considered one of this market’s founding fathers, as the company has been investing in adjacent sectors for longer than it actually became an acronym-worthy umbrella concept. (The hint is in that “Telematics” bit of the name.) So it’s useful to get some extra indication of where such a long-standing bellwether may be heading next. Besides this blog, we have also published on the topic an ABI Insight, which provides our customers with additional analysis.
The deal’s financial details are undisclosed and hitherto ungossiped. The combined entity is set to have three million subscribers from over 1,500 customers using services in over 100 markets. Interestingly, in the same announcement KORE also confirms that prior to the acquisition it had got itself a new investor in ABRY Partners, a private-equity shop. ABRY is actually the new majority owner, to the tune of four board seats out of seven.
It probably isn’t too far-fetched to assume that KORE had been seeking additional funding that would allow it to become an acquirer instead of an acquiree, and once it got a suitable one locked down the Raco purchase fell into place in due order. It’s usually a lazy cliché to describe a market as “ripe for consolidation”, but in this case it’s even true, for a few reasons:
- Independent, MVNO-style cellular service providers such as KORE and Raco need greater economies of scale to remain competitive. While both companies have been diversifying beyond providing and managing connectivity, that is still effectively their bread and butter. It’s a high-volume, low-margin business with a limited upside.
- What’s more, the MNO providers are becoming increasingly capable of providing global cellular connectivity directly, which is will over time undermine the MVNO’s value proposition. Carrier initiatives such as GSMA Embedded SIM and M2M World Alliance are likelier to hurt them than help them. Consequently, besides the low ceiling the indies have to deal with progressively narrowing walls.
- At the same time, it’s starting to look like that the connection layer that large enterprise-grade IoT projects rely on is becoming more complex than previously. We’re expecting many of the large Industrial Internet kind of deployments to require capabilities in short-range, edge-level connectivity, delivered either in-house or through partners, so players that fail to shore up their portfolios accordingly won’t qualify for the juiciest contracts.
- Finally, climbing up the value chain is also possible, but it takes near-term investment without near-term returns, so that’s another aspect where the additional scale will help. Enabling IoT applications instead of mere connections has a fairly high upside, but based on our market-sizing efforts it’s still a messy space to operate, to say the least. The ceiling is up there, but the climb has to be done currently with a pile of stools rather than proper ladders.
Given this environment, it's far better that both KORE and Raco acted now than in, say, a year's time. The new company will be in a more comfortable position to defend its core business and to invest in its longer-term growth areas.