The “Internet of Things” vendor ecosystem is a mess. According to MachNation, it takes four to six IoT suppliers to create one solution for an enterprise customer. Why? Because the technology components – devices, networks, platforms, middleware and apps – are still uniquely provided by best-of-breed vendors, most solutions are still custom developed and integration services are almost mandatory for each enterprise customer deployment.
But this messy supplier ecosystem continues to simplify as IoT-related acquisitions abound. MachNation has tracked eight significant IoT acquisitions over the last 18 months and found interesting patterns.
Platforms garner the biggest multiples.
In general, IoT application enablement platforms trade at 12- to 20-times revenue. We believe this premium exists because the underpinning of an IoT solution requires that data stream from devices to applications. This is the domain of an AEP. The best AEPs provide flexibility and simplicity in connecting devices to the platform and a rich set of publicly-available APIs to enable data to flow securely upstream to apps.
IoT AEPs are the most highly valued acquisition targets in IoT. MachNation completes an annual IoT AEP ScoreCard that analyzes the technology and strategy of these AEP vendors. This document has proven to be our most popular piece of research, primarily because acquisitive companies need to fully understand the differences in technology, components and strategies of various AEPs. Put another way, not all AEPs are alike.
MVNOs and services companies trade at lower multiples
Mobile virtual network operators and various IoT services-centric companies trade at two- to six-times revenue. These companies generally have recurring revenue streams or consulting-led business models. Many of them have been in business for 7-plus years, which is almost an eternity for an IoT vendor.
The value of these companies sometimes comes from their technology, but most of their value comes from their IoT customers. IoT and technology vendors realize they can leverage an acquiree’s customers to sell more of their own products and services. Plus the acquiree’s customers are a great market for introducing new IoT solution features.
Other IoT OSS/BSS companies fit in the middle
MachNation believes acquisitions of other types of IoT operating support system/business support system vendors trade somewhere between six- and 10-times revenue. There have been few of these acquisitions to date, but we anticipate more in the near future. Vendors that generally provide one component of the OSS/BSS stack including device management, billing/settlement, provisioning and visualization would fit into this category.
The value of these vendors comes from their technology, fairly extensive customer lists and good partners. Some of these companies have been IoT providers for quite a long time and have a relatively rich set of integrations. These integrations make it possible to build their solutions into the acquiring company’s set of existing technology and IoT-specific tools.
MachNation expects more acquisitions in 2016 and will continue to track interesting IoT vendors that fit uniquely into the ecosystem. We anticipate that some fairly large IoT OSS/BSS vendors will make acquisition moves in 2016, as these legacy players have been marginalized in the current IoT ecosystem. In addition, we anticipate software vendors including Autodesk, PTC and others to continue their pursuit of relevant IoT acquisitions.
Steve Hilton is an analyst and co-founder at MachNation. His primary areas of expertise include competitive positioning, marketing media development, cloud services, small and medium businesses and sales channels. Hilton serves on Cisco’s IoT World Forum Steering Committee where he is chairperson of the Service Provide working group. Hilton has 22 years experience in technology and communications marketing. Prior to founding MachNation, he built and ran the IoT/M2M and Enterprise practice areas at Analysys Mason. He has also held senior positions at Yankee Group, Lucent Technologies, TDS (Telephone and Data Systems) and Cambridge Strategic Management Group. Hilton is a frequent speaker at industry and client events and publishes articles and blogs in several respected trade journals. He holds a degree in economics from the University of Chicago and a Master’s degree in marketing from Northwestern University’s Kellogg School of Management.
Editor’s Note: Welcome to Analyst Angle. We’ve collected a group of the industry’s leading analysts to give their outlook on the hot topics in the wireless industry.
