Would a Mitel Buyout of ShoreTel Be Good for Customers?

20 Oct 2014

The announcement made by Mitel on Monday, October 20, 2014 that it is proceeding with a hostile takeover bid for ShoreTel raises many concerns. Although there are many open questions about ShoreTel's formal response, the financing, and company integration issues, it is appropriate to focus on what might it mean to buyers of UC solutions if the deal goes through.

From the perspective of the buyer, Mitel and ShoreTel occupy similar space in the UC systems marketplace. Of the major manufacturers, both firms target the small to medium customers with well-designed systems that are usually more affordable than other (market leading) competitors. Thus, they are often going head-to-head competing for many of the same customers. Many customers favored the combination of market presence, solid UC performance, and more affordable solutions delivered by Mitel and ShoreTel. If they merge, the SMB customers will have fewer high-quality choices in a critical space.

With a good product line, loyal customer base, growing market share, and almost no debt, many experts have believed ShoreTel was a likely acquisition target for quite some time. On top of that, some perceived ShoreTel stock price as undervalued. Although you can admire the ambition of Mitel, there will be many doubters about how this represents a wise move. Mitel struggled to integrate the product line obtained from the purchase of InterTel and are still working on integrating the Aastra products. Prior to this announcement, Mitel was positioning the 5000 (old InterTel product) at the small end, even though it scales well into the lower end of the medium sized customer. The Mitel 3300 is a good fit up to around 4,000 users, but it scales fairly well into the low end. Thus, Mitel already had overlapping products that had almost nothing in common. Not to mention the third product for the large market that is different still. At least on paper, ShoreTel overlaps all three - although it is strongest in small and medium markets, the ShoreTel product will scale into the large market size.

Thus, questions about the product line futures abound. Can Mitel afford to invest significant R&D dollars into four different UC systems? Is there any technical way to blend dissimilar products (very unlikely)? Which products will be the favored systems going forward, and what happens to the systems, and the customers of the rest?

When looking at cloud-based solutions, the logic is not any clearer. Mitel had some traction with both the 3300 based-platform and with the Clearspan solution; ShoreTel has a successful cloud offering and has been working to blend its premises technology with the ShoreTel Sky offering obtained in the M5 Networks acquisition. So would Mitel keep all three cloud offerings? Continue to develop and sell all three? Or does one (or more) eventually go away - and what happens with those customers?

Similar issues surround the Mitel and ShoreTel channels, but that will be left for others to debate.

Sometimes an acquisition is clearly advantageous because it fills a product hole or a market segment not otherwise addressed. The Mitel purchase of Aastra had that feeling to it, due to the large system capacity and the Aastra European customers. ShoreTel is a more puzzling decision, in large part due to the overlap in products and the overlap in the market. It will be interesting to listen to the industry chatter over the next few weeks.