UC Today broke the news earlier this week that Mitel are to be acquired by Searchlight Capital Partners in a cash deal worth around $2.0 billion.
This particular deal has not followed the theme of the year so far which has been consolidation. Mitel have not been acquired by a competitor, as we have seen with so many others over the past 6 to 12 months, Cisco BroadSoft, LogMeIn Jive and more recently Plantronics Polycom, but by a private investment firm. What’s the difference you might ask, and how will this differ from the aforementioned acquisitions? Let’s consider some of the reasons behind the deal and some of the potential ramifications for the industry and Mitel.
We hear from Mitel, some of their competitors and independent industry experts to analyse the deal to try and understand what the future will hold for Mitel.
Money
First of all we have to consider the financial aspect of the deal. Although not always the critical factor, more often than not the money did the talking. The purchase will ensure that Mitel shareholders receive $11.15 per share, which in total values the company at around $1.35 billion. Searchlight Capital Partners will also cover all of Mitel’s existing debt taking the total deal up to the $2 billion which is being quoted. The deal is still subject to final approval from regulators and, as we reported, it includes a 45-day “go-shop” period allowing Mitel’s board to test the water to see if there are any potentially better deals out there.
Wes Durow is Chief Marketing Officer for Mitel and we spoke to him about the deal and he explained that finances are of course an important factor.
“As a public company if somebody comes and makes an offer that you think is in the best interest of your shareholders, customers, partners and employees you have to consider that.”
Money Again
The price paid for the shares is one thing and taking on the existing corporate debt is another, but what is being implied by Mitel’s language after this deal alludes to another potential financial aspect. One word I have heard over and over again is ‘flexibility’. For the deal to provide ‘greater flexibility’ as per CEO Rich McBee‘s statement the underlying implication is that there might be more money available for cloud acquisitions or to accelerate a pre-existing strategy shift to cloud models.
As well as potentially providing investment to enable further flexibility the acquisition will also allow Mitel to operate a longer term strategy without having to adhere to the financial reporting they currently do within the NASDAQ. Matthew Townend, Director of the Cavell Group agrees.
“On the face of it any company being bought by a PE firm, one could argue is not that interesting, however what this may help Mitel to do, is finally migrate to being a cloud company without the quarterly pressure of satisfying Wall Street.”
Cloud Turnaround
The most heavily publicised reason behind the deal, as I alluded to in the above, is that Mitel have already made a huge shift to refocus their proposition from their existing on-site business to their cloud business. It’s not an easy transition to make as many of the more legacy providers have found. Some are pushing ahead aggressively, Avaya acquiring Spoken for example, and some are not even bothering, like Samsung. Mitel are acknowledging that they need to shift more rapidly to the cloud model and they hope that this acquisition will give them the flexibility, and potentially finances to do that even if further portfolio acquisitions are required.
Maybe Searchlight are speculating that helping to transform a more traditional vendor, with good market share, into a huge cloud player could prove a great investment when they look to sell up in 3 to 5 years. It’s rumoured they were amongst the final runners to purchase BroadSoft before Cisco swooped it, so it could be they have identified cloud communications as potential target market for quite a while.
Cloud native competitor RingCentral think it’s too late for Mitel anyway. Praful Shah, who is Chief Strategy officer for RingCentral explained more.
“The demise of the on-premises vendors continues unabated. Cloud communications solutions have totally disrupted the legacy systems vendors. The Mitel acquisition is another indication that this is an irreversible trend.”
Mitel will hope that this acquisition enables them to make the transition a success and compete with cloud native providers.
Possible Synergies
Searchlight Capital Partners have wide ranging portfolio with a wide variety of assets across various different verticals. From construction equipment through to clothing and accessories you might not consider that there are too many areas of overlap.
Although there is one obvious possibility that leaps out. Searchlight’s other main technology asset is Rackspace the managed cloud computing company. Rackspace were added to the Searchlight portfolio in 2016 in a deal worth over $4 billion. Rackspace profess to being the number 1 managed cloud provider globally so surely this infrastructure could be useful for a communications company looking to transform their model to be more cloud focused? Although any arrangements might potentially muddy any future deals to sell either company so this is early speculation as David Danto of Dimension Data surmises.
“We don’t know yet if it just becomes another one of Searchlights’ varied holdings or if there is any intention to explore synergies amongst them, like maybe combining the cloud voice on the Rackspace platform. It’s really a wait and see.”
What does the deal mean for the industry?
At this very early stage is very difficult to predict what if any affect there will be on the UC landscape. You would assume that, with some of the reasons detailed above, Mitel’s cloud proposition would become more competitive and more illuminated. There has been relatively little news surrounding their CloudLink proposition and you might expect a suspension of further developments until this acquisition is concluded.
Once finalised we might see more accelerated development from a cloud perspective and a more targeted strategy in terms of verticals and portfolio alignment to Mitel’s competitor’s propositions. However this isn’t something that is likely to happen too quickly. As Tim Banting from Global Data explains.
“This acquisition allows Mitel to invest longer term in its vision to ‘make everything cloud-capable’. However, previous private equity buyouts in the collaboration and communications market have taken considerable time to prove their strategic value; consequently, this may provide Mitel’s rivals time to re-access their own competitive strategies.”
What does this mean for Mitel staff?
Until everything is finalised we don’t know. Mitel over recent years have developed their market share and user base through a series of acquisitions: Inter-Tel, Aastra, Toshiba and ShoreTel. These constant acquisitions have already engendered an atmosphere of flux within the organisation. With such constant changes and additions staff levels have varied within the acquired companies and within Mitel themselves. Streamlining and redundancies often go hand in hand with mergers and purchases of this nature although at this stage nothing is certain.
Can we look at previous Searchlight acquisitions to draw conclusions? Following the acquisition of Rackspace, the most comparable in terms of size and vertical, there were consolidations. It may be expected for Mitel to have to reduce its operating costs to reflect its new position as a private company. The job cuts within Rackspace, as so often in deals such as this, were mainly in administration roles and over time it would not be surprise to see the same apply to Mitel.
Mitel CEO Rich McBee did say that the deal would see him stay on as the company’s chief executive officer. He also said the company isn’t planning any changes to its workforce.
So yet again an acquisition leaves more speculation than answers and this deal appears to be no different. Only time will tell exactly how the deal pans out an if Mitel come out better than they went in.
