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December 19, 2016
Mitel's strategic direction took another unexpected turn Monday with the announcement that less than two years after buying Mavenir Systems for $560 million to get into the mobile market, it is selling that business, now known as Mitel Mobile, to privately held messaging and unified communications specialist Xura Inc. for $350 million in cash plus a stake in Xura's parent.
Mitel Networks Corp. says the divestment "reflects a strategic decision made during Mitel's recent annual business review to refocus the company exclusively on the Unified Communications and Collaboration (UCC) market as digital transformation accelerates demand for cloud-based business communications solutions globally." However, it's likely to be regarded as a failure to capitalize on the potential business opportunities that Mavenir's VoLTE, Voice-over-WiFi, RCS (rich communications services) and Diameter signaling systems offered.
At the heart of the new deal is Siris Capital, a private equity company that has already featured in Mitel's topsy-turvy 2016: Mitel was on the cusp of merging with video communications specialist Polycom earlier this year before Siris Capital stepped in with a successful higher bid. (See Siris Snatches Up Polycom, Leaving Mitel Bereft.)
Siris closed that deal in September, only weeks after it acquired Xura for $643 million. Xura is a messaging, voice platform and unified communications specialist that was formed from the merger of Comverse and IP messaging platform specialist Acision. (See Siris Capital Takes Xura Private in $643M Deal.)
Now Siris has formed Sierra Private Investments L.P., a limited partnership company that will own Xura and the mobile business being acquired from Mitel. In conjunction with the acquisition of Mitel Mobile, Xura is also acquiring cloud RAN (radio access networks) startup Ranzure Networks: Pardeep Kohli, the founder and CEO of Ranzure (and former CEO of Mavenir), will become the CEO of Xura, which is positioning itself as a company that can offer mobile operators "fully-virtualized, 5G ready software solutions across every layer of the mobile network infrastructure stack."
Mitel will get $350 million (subject to M&A adjustments), a "$35 million non-interest bearing promissory note" and an as yet unspecified stake in Sierra Private Investments.
Mitel paid $560 million for Mavenir in early 2015, announcing the acquisition in early March and closing the deal in April: The company says it will record "a significant write-down of goodwill" in the fourth quarter of 2016 related to the sale of the mobile unit. (See Mitel to Acquire Mavenir for $560M.)
Now Mitel CEO Rich McBee needs to persuade investors this is the right move. "In a period of rapid change and massive technology transitions, scale and focus are key to driving growth and shareholder return. This transaction will allow Mitel to achieve these goals," he stated in the official announcement of the deal. "It also enables us to intensify our focus and capital in expanding our leadership position in the enterprise market as it prepares for large scale digital transformation of premise-based systems to the cloud. Employees and customers of the mobile division will benefit by being part of a large carrier-focused company with the size, scale and support infrastructure needed to truly compete for and drive the next wave of 4G/5G innovation."
Mitel is also set to announce a share buyback scheme to help boost its flagging share price, which McBee and his team believes is currently undervalued. Prior to the markets opening Monday, Mitel's share price stood at $7.41.
— Ray Le Maistre, , Editor-in-Chief, Light Reading
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