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Cramer Systems

November 17, 2006,
by volcanic

Surviving the telecom market slump to achieve a $425 million exit

Cramer Systems is a great example of a capital-efficient European technology company that became a world leader in its category with judicious use of external capital. Cramer was one of the most successful private European software businesses at the time of its sale to Amdocs in August 2006 for $425 million.

In the late 1990s, founders John Craton and Don Gibson had a vision of how telecom operators could use software to better manage their networks and dramatically improve service delivery.

John and Don were a classic bootstrapped team - scrappy and opportunistic. They funded development with cash earned from consulting services and with seed capital from a number of well-connected angel investors, including David Embleton and Mark Farmer (who went on to establish Eden Ventures).

Cramer's technical team worked closely with a small number of 'beta' customers customers to fine-tune the first iteration of the product which later became Dimension.

In 1999, with initial customer deployments completed, Kennet became the first institutional investor in Cramer. Kennet's £1 million investment financed the commercialisation of Dimension in Europe.

Kennet partner David Carratt joined the board of directors and set to work with the founders on expanding the sales and marketing activities of the business. Further sales soon followed, and in October 2000, Cramer raised $25 million from Kennet and US investor BCP Capital Partners to finance expansion of the business to the US and Asia.

A critical success factor for the company was that much of the $25 million funding remained unspent. When the telecoms market entered a severe downturn in 2001, Cramer controlled its expansion carefully and retained a significant cash cushion. Cramer invested in expanding its US market presence, but it did so carefully, and-in spite of the usual setbacks during initial US market entry-relatively inexpensively.

Capital efficiency was core to Cramer's culture, and this culture secured the steady improvement in operating performance. The customer list grew to include BT, Vodafone, Bell Canada, KPN, Cable & Wireless, and Japan Telecom. Cramer's revenue increased from £1.4 million in 1999 to £52.7 million in the year ending July 2006, and the company was continuously profitable since 2003.

From the time David joined the board, he worked to help the company manage the key challenges of growth. He used his own operational experience in selling high-end software solutions, and the diverse skill set of the full Kennet team, to support the business and maximize growth.

In particular, Kennet led board-level efforts in the following areas:

Definition of market opportunity - the telecoms market is relatively narrow and market potential depends as much on product pricing as it does on landing new customers. Kennet encouraged the company to price its products based on a calculation of the value obtained by customers. This significantly increased the average sales price and thereby grew the size of Cramer's addressable market.

Professional CEO recruitment - most growing businesses need to recruit professional managers as they develop. The key to Kennet's approach is to work closely with the founders to determine when to professionalize the CEO role, and to manage the selection process on a consensus basis. David led the board's recruitment of Guy Dubois - previously head of Peoplesoft EMEA - the CEO who took Cramer to its successful exit.

Sales expansion - during the period of Kennet's investment, Cramer expanded its presence from the UK to worldwide coverage with 434 employees based around the globe. The prioritisation of investments in each geographic territory was a continual topic of board discussion. Kennet was actively involved in the development of the US market entry strategy and the selection of the equity partner to finance international expansion.

Exit planning - During the term of Kennet's investment in Cramer, David contributed a global view on exit alternatives to board discussions. In 2005 and 2006, he actively engaged in discussions with multiple prospective acquirers, and led the negotiations on behalf of the investor shareholders which culminated in the sale to Amdocs for $425 million in August 2006.