Update: Ottawa’s Mitel to be acquired by Searchlight Capital for $2B

Little disruption expected at Kanata headquarters, CEO McBee said
McBee
Rich McBee, CEO of Mitel.

A shift back to private ownership will help Mitel focus on its long-term cloud strategy, CEO Rich McBee told OBJ Tuesday after the firm announced that it had been acquired by an investor group.

Mitel (NASDAQ:MITL)(TSX:MNW), one of Kanata’s largest and oldest tech firms, will be acquired by affiliates of Searchlight Capital Partners in a US$2-billion all-cash deal including debt.

Mitel’s stocks rose nearly 10 per cent on the Nasdaq exchange today, matching the US$11.15 per share payout price that investors will receive when the deal is closed.

If approved by shareholders and regulators, the sale will transition the cloud-based communications firm from a publicly traded firm to a privately held company. McBee said this transition will let the Mitel execute its growth strategies over the longer term, without having to worry about results quarter-to-quarter.

A tale of two verticals

The Mitel of today is a communications firm primarily of two streams: a traditional, on-premise model that’s been in decline; and a cloud-based communications solution that the firm has pegged as its future. Its current opportunity lies largely in converting those on-premise customers to the cloud.

That strategy, McBee said, divides shareholders. Some want the Mitel that provides good cash flow and maintains profitability, while others want the firm that pursues the high-potential cloud market more aggressively. Having to please both of these groups, the chief executive said, is a hindrance.

“Do I invest in the long term … or do I make sure that I optimize for that 90-day report card?”

“Do I invest in the long term … or do I make sure that I optimize for that 90-day report card?” McBee asks, echoing the question he’s been trying to answer these past few years.

“Navigating that on a quarterly basis is a pretty tricky thing to do in a public environment.”

In February, Mitel reported revenues of $356 million for the quarter ending Dec. 31, 2017, and grew its net profit to $33.1 million from $27.3 million a year earlier. Despite raising profits and a 37 per cent year-over-year increase in revenues, Mitel’s shares sunk nine per cent the day it reported those earnings.

Though there’s been some relative volatility, the firm’s stock has been having a strong 2018 to date, with share prices growing more than 25 per cent on the Toronto Stock Exchange since Jan. 1.

‘It’s the same company’

Mitel’s board of directors have unanimously endorsed the sale, including co-founder Terry Matthews, who said in a statement that the 45-year-old firm has always acted in the best interest of its shareholders.

“Our board determined that this transaction, upon closing, will deliver immediate, significant and certain cash value to our shareholders,” he said.

McBee, who will be staying on as CEO, expects little change on the ground in the firm’s Kanata headquarters, where some 550 people currently work. Unlike the firm’s recent ShoreTel acquisition, there’s no merger or redundancies to consider with this deal.

Boosters of Ottawa businesses often lament the loss of locally headquartered firms because decisions are made outside of Ottawa and the city loses expertise in certain areas, such as investor relations. However, McBee downplayed the significance of the change in ownership.

“The reality is, it’s the same company, same strategy, same management team, just doing it in a public versus a private environment,” he said, adding that he’s proud of the research and development that’s been coming out of the Ottawa centre.

The deal is not yet final – it will be subject to shareholder, court and regulatory approvals. Mitel may also actively solicit other offers for a 45-day period through to June 7. Jefferies LLC is acting as a financial adviser to Mitel at this time, and McBee said he’s limited to what he can disclose about the acquisition process while the firm is open to other bids.

Mitel will report its upcoming first quarter earnings on May 3, but will forego a conference call with investors and analysts.

The firm expects the deal to close sometime in the second half of 2018.