Cloud communications is still an example of an emerging technology market. Few geographies have a mature, established cloud communications landscape with high rates of cloud user penetration. It is this continued emergence which makes the cloud communications sector particularly interesting for investors and those looking to accelerate growth through merger and acquisition. The market and technologies utilised create an abundance of opportunities for those with the means to obtain, drive, and develop businesses with innovative technology platforms.
It is this premise that created so much interest in Cavell Group’s first virtual event, Cloud Comms Summit Invest 2020. Hosted in conjunction with Q Advisors – one of the world’s leading investment banking firms, specialising in the telecoms, media and technology sectors – CCS Invest bought together representatives from various industry stakeholders: investors, innovators, and strategists to examine a selection of topics covering various opportunities that the cloud communications market provides.
Key Trends Driving Investment
There are various factors that underpin the opportunities present in the industry. Matthew Townend, Cavell Group’s Executive Director, opened the event with his keynote which summarised some of the main considerations. Townend picked out the market’s strong growth, COVID’s impact on technology adoption, and some of the sectors providing emerging value – such as cloud networking – as areas that are revealing particular opportunity.
The impact of the global COVID crisis has had a particularly profound impact by uplifting demand for cloud communications solutions and increasing overall market awareness with the enhanced focus being placed on the technology solutions that have helped businesses continue to function during the global crisis. These factors have seen the popularity, and awareness, of the industry’s biggest players grow massively. With the heightened presence of ‘megacloud’ competitors the remainder of the cloud communications industry has to come together to compete effectively, so future mergers and consolidations may be one route for the industry to try and overcome competition from the giants.
As well as educating the audience on some of the key investment drivers, Townend, also outlined key frameworks that underpin the logistics of any mergers or agglomerations. Cavell Group’s experience in commercial due diligence has revealed several key considerations which Townend relayed to the audience. The importance of ‘pure-cloud’ capabilities, customer migration planning, and technical diligence were all vital factors which should be considered during any strategic evaluation. Even with various factors to consider Townend concluded that there was clear value and growth to be realised in the market.
Further Industry Consolidation on the Horizon
Michael Quinn, founding Partner at Q Advisors, then took the virtual floor for his keynote which focused on the future of the sector. Citing further trends like remote working, cloudification, and the rise of collaborative solutions Quinn explained that industry was undergoing huge consolidation across the board. This consolidation is taking place amidst a challenging landscape with an inevitable global recession on the horizon creating credit access issues and a requirement for more equity in deals. The importance of free cash flow is becoming even more critical for financial and strategic investors.
One key trend that Quinn focused on was, again, the looming presence of the ‘megacloud’ players such as Microsoft, Google, and Amazon. The position of these huge players in technology markets globally enables them to explore strategic acquisitions that can augment and strengthen their existing propositions.
"The big are getting bigger, the strong are getting stronger"
Quinn used Microsoft’s acquisition of Metaswitch to provide further context. Explaining that Microsoft can now utilise the technology and expertise acquired to provide a full stack solution for customers, from compute and networking resource to class leading endpoint application provision.
Q Advisors see the Microsoft Metaswitch deal as a spark for increased merger and acquisition activity within the industry. Quinn predicts that 2021 will see heightened merger and acquisition activity as the industry begins to return to some form of normality post COVID. The world’s largest technology providers are in prime position to explore the market and target businesses that offer them synergistic advantages within markets such as collaboration and customer engagement provision.
Looking ahead to who might be next, Quinn, mentioned both 8×8 and Mavenir who appear to be in prime position for potential acquisitions. 8×8 holds a strong market position and may appeal to the industry’s biggest providers looking to leverage a large cloud communications user base and an innovative technology stack. Quinn then drew parallels with Mavenir and Metaswitch, Mavenir provide a similar range of infrastructure enablement technologies and companies looking to compete with Microsoft’s proposition may look to such a company to bolster their own position.
Concluding, Quinn said that he expects much more merger and acquisition activity at the high end of the market. Mid-market players, with strong regional presence but little international scale, need to expand quickly to avoid becoming targets. This can be difficult to achieve organically, which may in turn lead to trickle-down effect as those players look to grow through strategic acquisitions by acquiring smaller players throughout the industry.
Winners and Losers
The main stage panel discussion focused on the industry’s success stories, exploring why particular business have been more successful than others. Townend and Dominic Black, Director of Research Services at Cavell Group were joined by Dmitry Netis, Managing Director of Q Advisors and Catharine Trebnick, Vice President at Colliers. The panel examined the industry and highlighted some particular companies, analysing their market strategies. One area that seemed to underpin various success stories was a ruthless focus on strategic execution and on end customer requirements. Some of the businesses that have managed this have achieved extremely high earning multipliers: RingCentral, Five9, and Zoom. Whether these valuations would be accurate in the long term was another area of focus for the panellists.
Zoom was cited an example of a business with an extremely high valuation that – in the opinion of some – maybe over inflated. Both Trebnick and Netis provided further context behind these valuation calculations. Investors are exploring multiple factors and sustained growth is the foundation of Zoom’s success. Another factor that makes Zoom stand out is its bridging of both the consumer and business markets. By enlarging its potential market with consumer products its market opportunity increases and also its attractiveness to investors.
All Bases Covered
CCS Invest then broke into two separate tracks to provide the attendees with bespoke learning paths. Track one provided real world insight into some of the industry’s most noteworthy deals. Hayley Hughes Morabito, Vice President at Q Advisors, asked both Xavier Casajoana, CEO of Voztelecom, and Krish Ramakrishnan, Co-Founder & Executive Chairman BlueJeans, about the purchases of both Voztelecom and Bluejeans, respectively. Both Casajoana and Ramakrishnan provided reasoning behind their strategies and explained more about the logistics and processes involved with large acquisitions.
Track two featured a host of industries experts who examined the buying capabilities and criteria that businesses consider when forming their strategies. Andy Morris, Chief Strategy & Operating Officer at Gamma Communications, explained more about the foundation behind Gamma’s acquisition of Exactive, and Bryan Martin, Chairman and CTO of 8×8, spoke about how 8×8 look to strike a balance between external purchases and internal development. Enghouse Networks have been extremely busy acquiring various complementary technology businesses and panellist Sunil Diaz, GM & MD of Enghouse’s Communications & Media division explained their key selection mantra:
"We look to acquire to fill in gaps in our portfolio"
The panellists went on to provide their experiences and some of their top tips for ensuring smooth purchasing processes. Comprehensive due diligence, cultural synergies, and process experience were all highlighted as vital.
Before providing a virtual networking opportunity CCS concluded its individual learning tracks with two final panels. Expert panellists representing businesses such as Mitel, Blueface, and Destiny reviewed the prospect of international expansion. All of those business have looked to new territories to expand their revenue opportunities and the panellists discussed some of the key considerations that must be evaluated when looking to expand a business overseas.
The event’s final panel focused on the cold, hard facts. Private equity experts from Horizon Capital, Apax France, Clairvest, and Thompson Street Capital Partners explored the key criteria that they want to see before making an investment in a business. Assembled from a variety of geographies the panellists compared some differences in terms of key evaluation criteria but there were some key KPIs that underpinned the discussions. The value of a target businesses’ intellectual property, product set, and future strategy provided a consensus throughout the panel.
Townend was rightly enthused by the event and the talking points and debate it generated:
"Our first invest event proved a great success, with representation from over 30 investment firms and a host of C-level executives from some of the industry's leading service providers and vendors. This combination generated some fascinating discussion points"
If you missed out on the CCS Invest event and want to learn more stay tuned to the Cavell Group website where more content from the event will become available on demand over the coming days.