Mitel in M&A Maelstrom

Voice platform vendor has been in an acquisitive mood – and it could get forced into a shotgun wedding if activist investor Elliott Management gets its way.

December 3, 2015

5 Min Read
Mitel in M&A Maelstrom

Mitel is at the heart of an enterprise communications platform sector upheaval that could lead to significant M&A activity in the coming months, with the Ottawa-based company still seemingly on the hunt for further acquisitions while at the same time coming under pressure to participate in a communications industry shotgun wedding.

Under CEO Rich McBee, Ottawa-based Mitel Networks Corp. , which sells cloud-based, on premises (PBX) and hybrid voice and unified communications systems to enterprises and communications service providers, has been busy making significant acquisitions during the past couple of years, targeting companies that have developed mobile, cloud platform and contact center communications capabilities.

In early 2014 it splashed C$392 million (US$293 million) to buy voice platform peer Aastra Technologies and then bought VoLTE and RCS system specialist Mavenir Systems for US$560 million earlier this year. (See Mitel to Acquire Mavenir for $560M and Mitel to Buy Aastra for C$392M.)

Then in June this year, Mitel announced the acquisition of TigerTMS, a UK-based provider of cloud-based communications services to major hotel chains such as Marriott, Hyatt and IHG. Financial details were not disclosed.

Now, according to industry sources, Mitel was one of a number of companies that had its eye on the hosted platform business of Austin, Texas-based LiveOps, a niche player in the cloud-based contact center technology market.

One well-placed industry source tells Light Reading that the LiveOps Cloud Platform has been touted around in recent months and may even have been offered to the highest bidder in an auction process in which Mitel is believed to have participated.

LiveOps has just announced the sale of its Cloud Platform to Marlin Equity Partners, supported by VC firm Presidio Partners, for an undisclosed sum. LiveOps CEO Vasili Triant, who will continue in his role under the new ownership, tells Light Reading in an emailed response to questions that the "LiveOps Cloud business was not part of an auction process. Mitel is a partner of LiveOps, but was not part of the sale process." Mitel declined to comment. (See Marlin Equity to Buy LiveOps Cloud Platform Business.)

It's not surprising that multiple parties would be interested in the LiveOps business: According to a recent report from MarketsandMarkets, the global cloud-based contact center market is "expected to grow from $4.68 billion in 2015 to $14.71 billion by 2020, at a Compound Annual Growth Rate (CAGR) of 25.7%."

According to that report, the key players in the market include the likes of Oracle Corp. (Nasdaq: ORCL), Cisco Systems Inc. (Nasdaq: CSCO) and Genesys , while Mitel and LiveOps were identified as "key innovators."

LiveOps has raised $81 million from investors such as Benchmark Capital and Menlo Ventures, according to CrunchBase. It doesn't publish its revenues, but the company's then CEO Marty Beard (now chief operating officer at BlackBerry) was boasting annual revenues well above $100 million during an interview with the Silicon Valley Business Journal in January 2014.

Elliott's latest shotgun wedding
But the availability of LiveOps hasn't been the only M&A matter on Mitel's mind currently: The company is currently being put under pressure by activist investor Elliott Management to merge with videoconferencing system vendor Polycom Inc. (Nasdaq: PLCM).

Elliott Management, you may recall, is well known for forcing the arm of companies such as EMC Corp. (NYSE: EMC), Juniper Networks Inc. (NYSE: JNPR) and Riverbed Technology Inc. (Nasdaq: RVBD) in an effort to maximize shareholder value. (See M&A Speculation Swirls Around Juniper, VMware May Buy Its Parent EMC – Report and Thoma, Teachers Fund Win Riverbed's Hand.)

Elliott, which has built stakes of 6.6% in Polycom and 9.6% in Mitel, last month issued a letter urging the companies to merge in a deal that would be create a profitable company with revenues of more than $2.5 billion and better placed to deal with competition from Cisco. Elliott believes Polycom could acquire Mitel for between $1 billion and $1.2 billion.

In its letter, Elliott stated:

  • ...we believe Mitel is a good platform vehicle to roll up the sector and is also an attractive merger candidate for Polycom. Mitel has a very capable management team led by CEO Rich McBee and CFO Steve Spooner, has engaged in successful M&A and offers valuable tax benefits to a new combined company. We believe that the ideal Consolidation Strategy begins with a Polycom/Mitel combination, whether those companies stay public or go private.

Elliott also believes a combined Polycom/Mitel would benefit further from then acquiring another voice platform vendor ShoreTel, in which Elliott also owns a stake. Mitel tried to engage in M&A talks with ShoreTel in 2014 but was spurned.

Mitel issued a statement noting that it shared Elliott's "views as to consolidation opportunities in our industry … Mitel's senior management has consistently discussed its intention to consolidate the market, and in recent years has proactively leveraged M&A activity to successfully deliver shareholder value. As always, we look forward to creating further value for all Mitel shareholders."

Not surprisingly, Elliott's move lit a fire under the share prices of Polycom and Mitel, which rose by 26% and 14% respectively following the publication of the letter. Since then, Mitel has also reported better-than-expected third-quarter financials -- revenues of $294 million and non-GAAP earnings of $0.12 per share -- that further boosted its share price, which currently stands at $8.69.

Elliott and Mitel aren't the only companies driving enterprise communications consolidation currently: In early November French IT services giant Atos announced plans to acquire unified communications specialist Unify for €340 million (US$371 million). (See Atos Enters UC Fray With $371M Unify Bid.)

— Ray Le Maistre, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, Editor-in-Chief, Light Reading

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