Livingbridge investor targets cloud capabilities for communications service providers
With mergers and acquisitions (M&A) activity in the telecoms, media and technology (TMT) market at an all-time high, according to research from Thomson Reuters, Mo Aneese, who works in the investment team at private equity firm, Livingbridge, tells George Malim that telecoms-related investments are now really about enabling cloud services.
The firm targets businesses in the lower end of the mid-market with typical investments of between £2m-£70m in high growth businesses valued between £5m and £150m. The telecoms, media and technology (TMT) market is an area of focus for Aneese who sees exciting opportunities enabled by cloud technologies.
“We look at TMT with very little M, really this sector is about software and we see telecoms and unified communications, connectivity and managed services and IT consultancy and services in an around the technology space as areas of interest,” he explains. “If we think about the software business and digital transformation, we have seen customers [of software companies] transition from hosting software on-premise to having a software-as-a-service environment on the back of Office365 growth.”
“This is one part of the ecosystem that we have seen clouded but many software businesses have transitioned to cloud although this is determined by their own customers,” he adds. “We have software in very large financial institutions with their own data centre infrastructure where a licensed product is what they want. They still want to pay the capex. That may change in the short term but it’s yet to be seen.”
This increased familiarity and acceptance of cloud by a growing proportion of enterprises is altering the position that communications service providers (CSPs) have in the market place. It provides opportunities beyond connectivity but these have to be navigated carefully.
“What’s a managed services provider now?” asks Aneese. “It comes from many different angles, telco and UC providers encroach into the IT space so should they have their own market places where customers can buy security software, purchase connectivity and have mobile and desktop licences through a telco? There’s an argument that this will happen over time but we’re seeing some elements of this at the very top end with telcos moving into large scale cloud environments in partnership with others.”
“At the other end, start-ups are fully converged so it’s in the middle that we still see specialisms,” he adds. “Owning assets is not a differentiator, it’s an inhibitor. Having infrastructure and managing it is done more efficiently by hyperscale cloud providers so having infrastructure is less important at the level that we invest at. What we’re looking for is a service wrap and capability to manage solutions for a customer that involved dealing with a complex environment and supporting it.”
However, owning infrastructure is sometimes a benefit if it’s an enabler for a specialised service. Aneese gives the example of Livingbridge’s investment in M24Seven, a fast growing connectivity and internet infrastructure provider. Established in Manchester in 2003 as Metronet (UK), it has since grown rapidly, both organically and through transformative acquisitions, to deliver high-speed connectivity and managed services to corporates and SMEs across the Midlands and North of England, with recent expansion into London and Europe. The combined Group, which rebranded as M24Seven in 2017, operates a hybrid ISP network in the UK. By combining an offering of wireless and wired technology, M24Seven is able to offer connectivity solutions that are typically implemented five times quicker than traditional fibre and copper-based services.
Livingbridge’s £45m secondary buyout supported the business’s transformative acquisition strategy. In 2016 Metronet (UK) acquired M247, a leading internet infrastructure and hosting company, for £47.5m. With operations in Manchester, UK and Bucharest, Romania, the acquisition of M247 allowed Metronet (UK) to offer a combined portfolio of connectivity and content services across the UK and Europe. The ISP has recently rebranded as M24Sevennow employs around 250 people across six sites including Manchester, Newcastle, London and Bucharest, supporting almost 34,000 customers across 92 countries.
“The business was a wireless ISP and that was it’s differentiator – it could provide fibre in the air equivalents to leased lines but could deliver that connectivity in a shorter timescale that BT,” says Aneese. “That differentiator will run for a period until every building in every location is connected to the internet. A pure play wireless ISP is valuable but scaling it nationally is quite hard. We therefore bought another business with a network that PoPped in about 50 locations and also a hosting business that provided dedicated infrastructure. This provides great connectivity so, if you’re Netflix or Amazon Prime you can send video content through our network. It’s a real specialism and owning the infrastructure helps in this case.”
However, specialist infrastructure is only one aspect of the cloud-enabled telecoms market and Livingbridge has other investments that are taking a service-oriented approach to cloud opportunities. Aneese gives the example of Giacom, a specialist cloud services marketplace which provides cloud services to the SME market via the IT consultancy community.
Giacom offers a one-stop platform for all of the cloud software, infrastructure and IT support services that an IT consultant might require to transition an SME client into a public or private cloud environment and then manage them on an ongoing basis. Underpinned by a Microsoft 2-Tier Cloud Solution Provider licence, Giacom has become the vendor of choice for over 4,000 consultants enabling the business to service a fast-growing addressable market estimated to be worth approximately £2.2bn.
Aneese sees companies like this as the means for companies to access cloud software and cloud telecoms. “Office 365 is one of the biggest drivers but the challenge with all of this is that sometimes you’re selling products customers can download and use but others need a bit of expertise to enable them to be used,” he says. “That’s what’s missing in the telco space. It’s a gap that M&A has started to plug.”