Analysis of the Potential Outcomes of Mitel Acquiring ShoreTel
Oct 21, 2014
By Alaa Saayed
On October 20th, 2014, Mitel disclosed its proposal to acquire US-based competitor ShoreTel for $8.10 per share in cash, a bid that ShoreTel rejected shortly after given the low valuation. In spite of this, Richard McBee, Mitel’s Chief Executive Officer, declared that the company will remain open to constructive and progressive discussions. While Mitel’s move to potentially acquire ShoreTel may never become a reality, this article discusses the potential pros and cons of such an interesting move. Overall, a potential acquisition can strengthen Mitel’s position in the enterprise communications and collaboration industry against its competitors. However, new assets should be properly assessed and carefully integrated with the still-in-progress Mitel-Aastra consolidation.
Potential Benefits of the Acquisition:
1-Solidifying Mitel’s Position in the Global PBX Market. Although Aastra’s acquisition has already placed Mitel in the number three position in terms of global PBX line license revenue, ShoreTel’s potential acquisition could further strengthen the company’s position against Cisco and Avaya. With an estimated combined market share above the 12.0 percent, Mitel could be only two to three points away from becoming the number two PBX vendor in terms of revenue.
2-Expanding Mitel’s Installed Base of Enterprise Communications Users: With the Aastra acquisition, Mitel became the third largest vendor in terms of enterprise PBX users in the world, with 60 million users connected through Mitel and Aastra solutions. ShoreTel could bring an additional three million users and over 30,000 businesses on board. The combined installed base of telephony users will be approaching the size of Unify’s global installed base of PBX users.
3-Propelling Mitel to the Third Market Leadership Position in IP Desktop Phones: While Mitel has secured the number four position in terms of global IP desktop phone shipments, the ShoreTel acquisition can push the company further to the top, with a market share above the 10.0 percent globally.
4-Expanding Hosted/Cloud Communications Coverage: As of Q2 2014, Mitel reported a total of 754,045 cloud seats and 195,673 recurring cloud seats. ShoreTel’s Sky (the company’s hosted/cloud offering), on the other hand, now serves more than 142,000 end users. The combined hosted/cloud telephony business will make the company stronger in the burgeoning cloud communications space and provide it with greater resources to better serve its customers.
5-Expanding Regional Presence and Assets: With the potential ShoreTel acquisition, Mitel could become the third largest North American vendor in terms of IP PBX revenue. New assets could also augment the company’s already leading position in Western Europe and EMEA and strengthen its resources in APAC and LATAM. Furthermore, with more than 1,000 reported channel partners around the world ShoreTel can help expand the already large Mitel partner ecosystem comprised of more than 2,500 channel partners.
6-Increasing Overall Revenue: The company has already provided good indicators of a healthy first-half 2014 post-Aastra-acquisition performance. Both Mitel and ShoreTel have shown solid financials, with Mitel reporting over $1 Billion in annual revenue and ShoreTel steadily increasing its revenue every quarter. With the potential ShoreTel acquisition, Mitel could continue to strengthen its total revenue and grow its operational margins.
Potential Challenges of the Acquisition:
1-Product Integration/Consolidation Could be a Nightmare. Mitel is still in the process of consolidating the products and solutions that were originally part of Mitel and Aastra’s portfolios. While Mitel has reported significant progress with the portfolio integration, adding the ShoreTel products and solutions to its portfolio could be very challenging. Tough decisions will need to be made in terms of which products and solutions will be supported after the acquisition and which ones need to be discontinued and what will be the product evolution roadmap going forward. In the short term, there could be a growing number of customers and channel partners doubting the company’s plans and intentions about the future of each specific product and solution. In fact, within the last year, ShoreTel has tried to take advantage of the current uncertainties within the Mitel/Aastra consolidation through a marketing campaign under the message of “Mitel Aastra = MiConfusion!” (http://go.shoretel.com/mitel-5000-mivoice-uncertain-support)
2-More Products and Solutions Could Affect Mitel’s Value Proposition of a Single Software Stream for Enterprise Communications. Within the past years, one of Mitel’s top messaging campaigns has revolved around the benefits of providing a single software stream for all its enterprise communications solutions. Unlike some competitors offering multiple solutions that vary by customer size, regional location, and deployment model, Mitel has been proud to use a single software stream to support a broad range of customers and deployments. If Mitel’s vision is not to end -of-sale the various Aastra and ShoreTel products and solutions that are currently available, this message will no longer hold true and the company’s new image might be associated with uncertainties, complexities and doubts.
3-Sending a Compelling Message to Channel Partners Could be Challenging. A few years back, the market witnessed how competitors took advantage of the gigantic Avaya/Nortel acquisition to attract confused channel partners and compel them to focus their resources and efforts to sell their own products and solutions. Acquiring yet another important enterprise communications vendor such as ShoreTel and taking the time to align channel resources and programs for a new market strategy may result in many channel partners shifting their focus from selling Mitel’s solutions to more aggressively promoting other vendors’ portfolios. They are likely to become attracted to other enterprise communications vendors’ programs, as competitors take advantage of current uncertainties surrounding the new Mitel and offer compelling incentives.
The jury is still out on whether the acquisition will go through at all. However, if it does, the new entity will be powerful enough to give market leaders Avaya and Cisco and even formidable Microsoft a good run for their money!
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