In November Mitel Networks announced plans to merge with Aastra Technologies in a cash-and-stock deal worth $392 million.
Mitel’s friendly acquisition of the Toronto-based enterprise communications firm set the stage for a company that would have had combined revenues of $1.1 billion over the past four quarters.
The local company believes the deal will allow it to expand its geographic footprint. This will ideally position it to cash in on what it calls a $18-billion business communications market that is preparing to upgrade to cloud-based services, the firm said.
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Earlier this month the company announced another acquisition, this time of U.S.-based OAISYS.
Mitel CEO Richard McBee spoke with OBJ shortly after the merger with Aastra was announced.
OBJ: How did this deal come about?
Richard McBee: I try to reach out to all the various CEOs in the industry. About six months after I came to Mitel was the first time that I met Francis (Shen, one of Aastra’s two co-CEOs). (We) talked about our companies and, at that time, it was a mutual understanding of things. And then it just progressed over time.
Over the next couple of years, we made it very clear that we were interested in consolidating the marketplace; that’s where our strategy was and that’s where we were planning on being. He was watching and seeing how we were running and managing the company. He had been the original founder of Aastra and had been basically involved in the company for 30 years – they just celebrated their 30th birthday – and I think that they were getting to a place where … with the market ripe for consolidation, they were looking for a good partner and a good management team that they could merge with.
Eventually, the deal dynamics became such that it really started looking interesting and about three months ago or so we said, “Well, is there a deal that could be done here?” and we started to progress and work on a term sheet and something to say “OK, let’s see what this would look like.”
The more we got into it, the better it looked, for both parties. The reality is we were very surprised about how aligned our strategies were, but from a different perspective. They had a very European business and we had a very North American-oriented business. With the same strategy and geographic diversity brought together, that would really be a strong, compelling offering into the marketplace. As you start dealing with Europe and large global players, a strong global footprint is a very important aspect of a solid, well-run worldwide business.
OBJ: What value does bringing this company on board bring to Mitel?
McBee: Obviously the geographic reach. We jumped from 10 million end points to over 60 million combined, so there is a tremendous amount of installed customer (that) comes to Mitel. And that becomes important because as you go from hardware to software, every customer’s going to make that migration at some time; they’re not all going at the same time. But as they do then all the investments that we made in the software architecture that we have and the specific applications that we have, when you’ve got a very large customer base, then you can apply that against that large customer base. So we get great geographic reach – actually the combined company becomes No. 1 in Western Europe for communications and commerce services, so this is a big move for us. It strengthens our position in North America and completely takes the No. 1 position in Europe.
OBJ: What sorts of differences are we talking about here, if any, in terms of the different services, different technologies that you guys have to offer?
McBee: A classic example of that is they’re in Europe, where IP is emerging, not really prevalent yet. It’s still continuing to break out. So since IP hasn’t been big, but smartphones have, they have a tremendous amount of technology in the mobility space, for example. Here in North America we haven’t put that much investment into the mobility aspect, so there’s an example where they’ve got a very mature mobility base that we can bring to the U.S. At the same time, we’ve got a very mature cloud capability that we can take to Europe and that’s where each company benefits significantly from each other.
OBJ: Mitel also acquired prairieFyre last year. What are your future plans with respect to acquisitions?
McBee: Deals like this are relatively few and far between because they’re so big. We’re very active in the market. Where we see a technology that we need or we’re interested in, we’ll continue to buy. As an even stronger, financially sound company, the reality is both companies generate tremendous amounts of cash – Aastra comes with no debt – so there’s … the opportunity to continue to pay down debt (and) invest in these smaller companies, which we’ll continue to do.
OBJ: What is your criteria when you guys are evaluating these potential acquisition opportunities?
McBee: You’ve got to look at the market. Is this a market or capability we want to be in? The further away from your core, the higher the risk. So this is very near to our core. I think the second thing that you look at is high-quality companies. If they have a good market, but a bad-quality company, (it) doesn’t make a good deal. So then you want to find the other candidates that really fit your culture, your strategy. And then the last part is there’s got to be value. Candidly, we refuse to overpay for an asset.
OBJ: You’ve said you plan to spend $100 million annually on R&D. Where will it be targeted?
McBee: Three places. It’s going to be around communications and collaboration, which is our core business. We’ll have money that’s allocated specifically to advance the contact centre and the ecosystem that surrounds the contact centre. And then the third area will be in terms of cloud technology and being able to make our platform seamless – anything that touches the cloud and cloud capabilities. So those are the three major areas that we’ll be invested in.
OBJ: What goes through your mind when you reflect on the impact of this deal?
McBee: I feel real good about it. It’s a made-in-Canada deal. It’s two great Canadian technology companies, bringing them together and making a really strong one that’s got a place on a global footprint that matters and is significant. I’m kind of proud of that.
I think with all that kind of negative (stuff) going on out there in the Canadian technology marketspace, this is a big positive. This is one that’s about creating a world-class and world-footprint technology company that we’re going to drive hard and I think it’s going to be right up there as one of the good ones that’s been done.