Opinion: James Guglia

Last Friday, telecommunications service provider Daisy Group announced that it would breath life back into what remained of 2e2.

2e2 was born out of the ashes of the failed UK Norsk Data business and was backed by Gresham Private Equity in 2003. What ensued was a frenzy of M&A activity which saw private equity-backed value add resellers (VARs) such as 2e2, Azzuri, Calyx and Kelway battle for market supremacy. The untold damage caused by this ill-fated buy and build race is only now beginning to emerge as the first of these giants enters administration.

Between 2003 and 2006 Gresham backed 2e2’s management in acquiring four businesses: Prime Business Solutions Ltd, XKO, TriSys Limited and YUL Data Service. Having successfully grown the business, Gresham exited, handing the baton to Duke Street Capital in a secondary MBO. Under new ownership, a new capital structure and fresh gusto, 2e2 continued its consolidation course acquiring Compel Group plc in 2007, Netstore plc in 2008 and Morse plc in 2010. In January, 2e2 entered administration. So what went so badly wrong?

A number of factors contributed to 2e2’s demise:

• softer trading following Lehman’s collapse

• an industry shift towards cloud solutions, commoditising 2e2’s offering and resulting in margin pressure

• 2e2’s struggle under high levels of gearing following the acquisition of Netstore plc

• the poorly timed acquisition of Morse for £59 million in 2010, the largest transaction in 2e2’s history, which failed to deliver the cost synergies anticipated

Unfortunately, it was only a matter of time before these under-invested, highly-leveraged, “old economy” infrastructure service players faltered. I’m convinced 2e2 won’t be the last victim.

However, there is a twist to this tale. 2e2’s demise is a huge opportunity for the new breed of managed infrastructure service players. Contracts that otherwise might not have been up for tender are now flooding the market. And data customers now recognise the need to reduce their reliance on a single provider, which can only increase the market’s value.

The opportunity presented by next generation infrastructure service players such as Daisy, Computacenter, Datatec (Logicalis), Attenda and Star Technology is not being underestimated by sophisticated investors with deep industry insight.

These nimble, technologically advanced IT service providers will continue to attract a premium valuation as private equity houses like Bridgepoint and Better Capital, backers of Pulsant and Calyx respectively, know all too well.

Following impressive double digit revenue growth for the quarter ending September 2012 (up 13% to $641.4 million), I see that global infrastructure giant Citrix Systems boosted its enterprise mobility stake through the acquisition of US based, Zenprise for approximately £220 million. This follows the acquisition of Byte Mobile Inc in June, Podio in April and Nukona Inc at the end of March this year.

Citrix is now a major player in Enterprise Mobility or Bring Your Own Device (BYOD) a vibrant, high growth market valued at approximately $7 billion by a source none other than Forrester no less. The rise of BYOD is broadly accepted as positive, enabling productivity and workforce mobility, by offering employees the freedom to use any device and access any app. The challenge companies face is being able to offer this choice whilst retaining control and security over business information – no mean feat with mobile devices becoming ubiquitous and new apps flooding the market.

There are two solutions to this problem Mobile Device Management (MDM) and Mobile Application Management (MAM). MDM has been around for a while (technologically speaking), it allows Company IT administrators to ‘take control’ at the device level and ‘own’ said tablet, laptop, smart phone etc. This solution works best where the employer supplies the device but is coming up short in the BYOD scenario; a real concern when the use of smart phones in the work space is set to double between 2009-2014.

In a BYOD context many feel MDM is outdated, tantamount to ‘taking a sledgehammer to crack a nut.’ From the employees perspective the device is no longer their own, whilst the employer is nervous they now run the risk of inadvertently wiping a user’s personal information. MAM is an elegant, less evasive method of managing a company’s strategy and process around: developing, procuring, securing, deploying, accessing, configuring, updating and removing business applications. The issue is that it is relatively new to the market and comparatively untested.

Which will prevail? The verdict is still out and the latest Citrix acquisition does not make it any clearer. Until recently Citrix has invested considerable resource into MAM, largely dismissing MDM. The unexpected acquisition of (MDM vendor) Zenprise suggests the market is not yet ready for full blown MAM but a period of transition is required.

Therefore I predict some interesting M&A activity in the Enterprise mobility market:

‘Big Data’ analytics is already allowing marketers to effortlessly capture and analyse all types of customer data (including, voice, social media, business, web and mobile).

IBM, for example, estimates 2.5 quintillion (1030) bytes of data are created daily from a variety of sources around the world. This real time-intelligence on what consumers ‘tweet’ or ‘like’ about brands, products or services will enable marketing professionals to instantly generate highly targeted, integrated multichannel, online and offline marketing campaigns…or at least that is the Big ambition.

It is no wonder 'Big Data' analytics and its application in digital marketing has captured the imagination of tech-oligarchs IBM, Oracle, Adobe, HP and Teradata when you consider this - 70% of a consumer’s first interaction with a product or service takes place online and the forecast market growth for digital marketing spend (encompassing email, social, mobile and web) is expected to grow an extraordinary 124% in 3 years from $34 billion to $76 billion by 2016.

The past 24-36 months has witnessed these giants battling it out on the M&A field for analytics and software marketing assets; to build the infrastructure and capability they need to revolutionise the marketing landscape. Most recently:

• Teradata’s acquisition of eCircle AG, the Germany based company that provides software and services for digital dialog marketing and;

• IBM’s acquisition of TeaLeaf Technology, Inc, the US based provider of online customer experience management solutions, an acquisition that will enable IBM to expand its Smarter Commerce initiative by adding up qualitative analytics capabilities to provide real-time and automated insights.

Whilst industry observers suspect most of the capability gaps have now been filled and triumph lies in successful integration; there still remain a few businesses of scale that could lend that much needed momentum nudging one player ahead of the rest.

I for one am closely watching Emailvision, ExactTarget and Responsys (front-end marketing software providers) and ParAccel, Infobright, Kognitio and Sand Technology (back-end analytics vendors). As we adopt a greater number of portable smart devices that enable greater and more frequent data sharing with advertisers, it is companies like these that offer innovative technologies and efficient techniques for data capture and analysis that will command a premium valuation.