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On the verge of turning 50, Mitel looks to get ‘re-energized’ with major acquisition

February 24, 2023
3:04 PM
ET

Organizations: Atos, Avaya, Mitel, RingCentral, Searchlight Capital Partners, ShoreTel, Unify

People: Al Hurren, Anurag Agrawal, Rich McBee, Zeus Kerravala

Four years after its reported bid to acquire U.S.-based competitor Avaya fell through, Kanata firm is taking another crack at solidifying its status as a global leader in the unified communications space.

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Four years after its reported bid to acquire U.S.-based competitor Avaya fell through, Mitel is taking another crack at solidifying its status as a global leader in the unified communications space. For the Kanata-based telecom giant, which turns 50 this year, finalizing its recently announced agreement to acquire European communications services provider Unify would be a nice present to itself as it celebrates reaching the half-century mark. The deal “dramatically increases the scale of the combined company,” explained executive vice-president of engineering and operations Al Hurren, one of Mitel’s top local execs. “I’m bullish on the future of Mitel in Ottawa for sure.” Indeed, the pending acquisition of Unify would vault Mitel into a dead heat for top spot among global providers of business phone desktops with none other than Avaya, the California-based firm that Mitel was courting back in 2019. While that deal was never consummated, the odds of the Mitel-Unify union being sealed are looking good. The companies said last month they had entered into “exclusive negotiations” – French business terminology for reaching a definitive agreement – on a merger that’s expected to close in the second half of 2023 pending all the necessary regulatory approvals. As M&A deals go, it would be one of most significant yet for Mitel – a company with “a history of being acquisitive,” as Hurren put it. Prominent Boston tech analyst Zeus Kerravala once called former Mitel CEO Rich McBee “masterful at the art of the deal,” thanks to his track record of big buys like Mitel’s $430-million acquisition of California-based ShoreTel in 2017 and its $392-million purchase of southern Ontario-based Aastra Technologies in 2014. On the flip side, Mitel failed to convert its bid to snap up Avaya in an all-stock deal that was reportedly valued at between US$2.2 billion and $2.4 billion. Three years earlier, in 2016, the Ottawa firm’s efforts to acquire California-based Polycom for US$1.6 billion were stymied when a competing bidder swooped in with a better offer. Mitel itself is now owned by New York-based private equity firm Searchlight Capital Partners, which acquired the Kanata tech stalwart in late 2018 and took it private in a $2-billion all-cash deal. After years as a publicly traded entity, Mitel said then it hoped going private would give it more flexibility to focus on going after the cloud-based communications market without having to worry about satisfying short-term shareholder demands. Since then, however, Mitel has doubled down on the on-premise communications market. In a recent post, Kerravala said Mitel’s $200-million investment in cloud communications provider RingCentral in 2021 “was put in place to allow Mitel to drive innovation into its on-premises (unified communications) systems while not being distracted with playing catch up” in the cloud. While it couldn’t land Avaya, Mitel is now hoping the acquisition of Unify will help it challenge its former M&A target as a global leader in unified communications products. The newly combined entity will boast more than 75 million users – more than double Mitel’s current total of about 35 million – in 100-plus countries. According to Kerravala, that would give Mitel roughly a 20 per cent share of the world’s estimated total of 400 million business desktops and make Avaya and Mitel “the new 1 and 1A” in that category. The deal would also boost Mitel’s global channel community to 5,500 partners, “giving the company reach into almost every country,” Kerravala added. “For Mitel, this deal makes sense given the company’s current strategy of being dedicated to driving innovation in on-premises systems,” he wrote. Kerravala also noted that Mitel and Unify bring different attributes to the table. For example, while Mitel is more of a product company that sells headsets and other telecom infrastructure, Unify is focused on installing, managing and securing telecom services. In addition, while Mitel’s core customer base is in North America, its European counterpart is a much bigger player across the Atlantic, particularly in major markets like Germany. And in contrast to Mitel’s emphasis on targeting mid-sized customers, Unify tends to go after larger enterprises. “The complementary strengths of Mitel’s mid-market expertise and Unify’s successful enterprise managed services business will make Mitel a highly competitive option for mid-to-enterprise organizations,” Kerravala said in a statement. In a LinkedIn post last month, San Jose tech analyst Anurag Agrawal also gave the proposed merger a positive review, writing Mitel will be “re-energized” thanks to a broadened customer base and new service offerings. Hurren agreed, saying Unify’s “robust” managed services business and its strengths in verticals such as health care and financial services will help solidify the combined entity’s position in the global market. “It really complements what we’re doing and will bring some more expertise,” he said. Formerly known as Siemens Enterprise Communications, Unify was created as a wholly owned subsidiary of German manufacturing giant Siemens in 2006. Now owned by French telecom multinational Atos, the company has about 3,000 employees. The combined company will be headquartered at Mitel’s current home office in Kanata. While Mitel wouldn’t divulge its overall headcount, Hurren said “a few hundred” employees are based in the National Capital Region, mostly in fields such as finance, legal, IT, supply chain management and product development, adding that number “moves up and down depending on business cycles.” The longtime executive said plans for a 50th birthday bash are in the works, with an event likely to take place this summer. “We’ll continue to evolve and adapt as a company,” Hurren said. “I’m quite confident we’ll be here to celebrate 100 (years).”