Who Should Have Bought ShoreTel?

2 Aug 2017

Mitel has a definitive agreement to acquire ShoreTel, and I’m happy for all involved. We can argue all day if this was expected or inevitable, but the question I pose here is why weren’t there other bidders?

A quick look at the numbers shows an all cash deal of $530 million. That’s a lot of dough, but Mitel expects to realize $60 million in cost synergies within two years (mostly within one). That lowers to price down to $470 million. What’s Mitel get for that?

  • Last April, ShoreTel reported quarterly revenue of $87.7 million. Hosted revenues of $38.3 million were up 17 percent year-over-year.
  • One less competitor
  • More distributors and dealers
  • Arguably the newest UC platform in the industry - designed for prem, cloud, and hybrid deployments.
  • An entry-level CPaaS play

Mitel expects the deal to be accretive in the first year. That means that the gross and operating margin structure of the combined entity is better than Mitel alone. That’s a faster RoI than most UC customers see on investments. The acquisition makes sense financially, and it also promotes Mitel’s market share positions in UC and UCaaS.

These economics and benefits are not exclusive to Mitel. So why weren’t there more bidders from competitors? I can see lots of options, and here’s four of them:

Avaya: Avaya presents itself as a cloud company, but doesn’t have a multi-tenant UCaaS service as robust or mature as ShoreTel Connect. It would have been a cheap way to expand distribution and share, and update its portfolio. Admittedly it is difficult timing as the company is restructuring its debt, but ShoreTel signalled it was exploring options last fall.

NEC: ShoreTel Connect is newer than Univerge Blue and available in more markets. NEC would get the added bonus of more hardware to build in its factories. NEC could also leverage the ShoreTel distributor network.

Unify: Unify could farm the ShoreTel base (cloud and premises) for Unify Circuit -- its workstream messaging application. Circuit is more comprehensive and mature than ShoreTel Teamwork. Plus, Unify would also benefit from ShoreTel’s North American presence (dealers and customers).

Vonage: Today there are two kinds of UC vendors: pure UCaaS vendors that offer services, and vendors capable of providing premises-based, cloud, and hybrid solutions. If the price is right, there’s no reason for a global service provider to avoid premises-based solutions. A premises portfolio is good for SIP trunks, and provides a base for hybrid and cloud opportunities in the future. Vonage could either move the UCaaS base to Essentials or Premiere, or merge Connect with Essentials. It would also make Vonage the only single vendor that can provide UC, UCaaS, and CPaaS as well as the UCaaS market share leader.

Mitel doubled when it acquired Aastra. Since then it has acquired PrairieFyre and Oaisys. It’s on the path to double again with both Toshiba’s portfolio, base, and dealer network; and now with ShoreTel. It’s a clean and effective strategy, so why are they consolidating the industry alone?

I can see compelling arguments for RingCentral, 8x8, BroadSoft, CenturyLink, ALE, and Cisco. The accretive timeframe may not be as aggressive for others as it is for Mitel, but even at two years there’s a lot of value and acceleration potential within ShoreTel.

TalkingPointz.