Friday, September 5, 2008

Tangoe dances the acquisition waltz following funding

By Christopher Calnan

Software and services firm Tangoe Inc. of Orange, Conn., closed a $13.5 million round of financing in August to enable the company to complete its second acquisition in a year and keep it on track for an initial public offering.

Tangoe, which develops software designed to help enterprises reduce telecommunications costs, said it used the funding, in part, to buy New Jersey-based Information Strategies Group Inc. in late July. It also plans to use the capital to position the company for an IPO that would also fund additional mergers and acquisitions, CEO Albert Subbloie said.

But until conditions for IPOs improve, Tangoe plans to fund its own acquisitions.

“We’ll continue to look at carefully selected (mergers and acquisitions) in our strategy, in addition to organic growth,” Subbloie said. “I believe an IPO is a begin game (for growth), not an end game.”

The recent Series F financing included a combination of debt and equity funding from New York-based Investor Growth Capital Inc. and Orix Venture Finance, a division of Orix Finance, a debt financing provider, according to early investor and board member Gary Golding, general partner of New Jersey-based Edison Venture Funds.

The funding was completed to finance the Information Strategies acquisition in combination with providing Tangoe additional growth capital, he said.

As part of the deal, IGC managing director Noah Walley was appointed to Tangoe’s board of directors. Walley said the market for such cost management software is fragmented and ripe for consolidation.

Stefan Bewley, a principal at Altman Vilandrie & Co., a Boston-based telecom consulting firm, expects one or two pure-play companies to survive a future consolidation while major software vendors and other enterprise companies absorb other players in the market.

Tangoe, founded in 2000, boasts other investors including Portland, Maine-based North Atlantic Capital, and Hartford, Conn.-based Axiom Venture Partners.

The Information Strategies Group acquisition increases Tangoe’s annual revenue projection to $45 million from a previous $30 million estimate, Golding said.

Competitors include Bermuda-based Accenture Ltd., (NYSE: ACN), United Kingdom-based TeleWare Plc., California-based ProfitLine Inc. and New Jersey-based Control Point Inc., which last week agreed to be acquired by India’s HCL Technologies for $20.8 million.

Last year, Tangoe completed a merger with Traq Wireless Inc., a California-based provider of mobile lifecycle management software. The company wouldn’t disclose details of the Traq Wireless deal, or the Information Strategies Group acquisition.

Edison Venture, which in March opened an office in Needham, has invested in Tangoe since a Series B funding in 2002, maintaining two board seats, Golding said. In 2006, Tangoe shifted its business model from a pure-play software company to a managed service provider that offers enterprises a suite of services to control telecom costs.

It now hosts such services for three-quarters of its customers. Company revenue has grown an average 40 percent per year, Golding said. “There are thousands and thousands of companies that have this need,” he said.