Mitel Strengthens Market Share With Acquisition of ShoreTel
Mitel has recently announced a $430 million merger agreement to acquire fellow unified communications company ShoreTel. The merger will catapult Mitel to second place in the Unified Communications as a Service (UCaaS) market and has almost doubled the company’s UCaaS revenue to $263 million. The company is forecasting cost synergies of around $60 million, achieved through economies of scale and cutbacks in inventory, data centres and staff. The merged company will have 4,200 employees worldwide and will continue to be led by Mitel’s current CEO, Rich McBee, and CFO, Steve Spooner, and its headquarters will remain in Ottawa, Canada.
According to Rich McBee, “This is a very natural combination that enables us to continue to consolidate the industry and take advantage of cost synergy opportunities while adding new technologies and significant cloud growth to our business.” Mitel also acquired Aastra, who had previously purchased Ericsson, in 2013 and so this merger continues their apparent acquisition strategy. It has been said that Mitel intends to absorb ShoreTel very quickly, which would leave them ready to acquire more later on this year. The company intends to close the deal within just a couple of months.
In terms of Mitel’s motive to acquire the company, in August 2015 ShoreTel debuted one of the industry’s newest unified communication platforms, ShoreTel Connect, supporting onsite, cloud and hybrid deployments. The hope is that Mitel’s recent expansion of its video strategy, using Vidyo, will fit right into the ShoreTel Connect client. ShoreTel also recently gained an offering in the Communication Platforms as a Service (CPaaS) market, when the company acquired Corvisa in 2015, leading to the creation of ShoreTel Summit and mirroring a growing trend in the combining of UCaaS and CPaaS. Mitel appears to be in a strong position to leverage both ShoreTel Connect and Summit and the acquisition appears to be an extension of the firm’s “transitioning to the cloud” strategy.
Mitel previously attempted to buy ShoreTel in 2014, offering $8.10 a share, but this offer was rejected and Mitel was accused of seriously undervaluing the company. Since then, however, ShoreTel’s share price has really suffered after the introduction of ShoreTel Connect was not as smooth as anticipated. The company’s share price fell as low as $5.75 in July of this year, and ultimately sold to Mitel for $7.50 a share.
Mitel’s acquisition of ShoreTel falls in line with a pattern of acquisition within the industry, and especially exhibited by Mitel, that can only be expected to continue in the future, with further consolidation leading to increasing oligopoly within the industry and a smaller number of larger firms.
There is no need for customers to take any immediate action, but some level of product consolidation will most likely occur and so customers of Mitel or ShoreTel should carefully consider what their longer-term strategy would be. If you are in any doubt, feel free to contact 4C Strategies and we will be happy to provide guidance.
Simply call us on 01858 438938 or email webenquiries@4C.co.uk.