Turns out the rumors that have been swirling for months about an impending pairing of Mitel (News - Alert) and Polycom had some truth to them. The companies in mid April announced plans for Mitel to purchase Polycom for nearly $2 billion, in a move that creates a company with $2.5 billion in revenue.
The parent company of hedge fund Elliott Associates has holdings in both companies and has been pushing for the combination, as TMC’s (News - Alert) INTERNET TELEPHONY magazine noted back in December.
Here’s my take on the pros and cons of this deal.
Polycom most logically should have ended up merging with Plantronics (News - Alert) IMO – the companies are geographically close to one another, and the synergies between headsets and other endpoints seemed like a perfect fit. I’ve thought this for many years.
INTERNET TELEPHONY columnist Peter Radizeski even credits part of Polycom’s challenges in selling phones to the growth of headsets from companies like Plantronics. Another benefit would have been the separation from a UC platform provider like Mitel. Wes Durow (News - Alert), CMO of Mitel, however, points out that Polycom is more than endpoints – much of its new technology has far broader applications.
This is a follow up from the item above but worth focusing on. The Polycom sales team was able to sell a phone/endpoint-first approach to UC, meaning that if a company decided to buy phones from an open provider like Polycom, it could more easily switch PBX vendors. This is now a tougher pitch to make.
Now let’s look at the pros.
Mitel will keep Polycom as a standalone business unit. If they hadn’t, it could have really reduced sales of the product line in a few years. Polycom will continue to push its products as if they are independent. This will work with some companies, but the competition will literally rip them apart – saying they are really just Mitel devices and won’t work as well with other vendors’ solutions.
Mitel is piecing together a giant communications/tech company which focuses on cloud, UC, and mobile, and sells to carriers as well as enterprise. In a way, this makes it more like a small Cisco than just the corporate UC vendor it was just a few years back.
Also, according to Durow, when all is said and done, the debt leverage after the deal is done and synergies accounted for, will drop from 3.8x to 2.1x.
Then there are the patents. They now have an amazing portfolio going back to the very first days of the PBX, video, IP communications, etc.
Another upside to this deal is that the cross-selling opportunities are massive. Just think if they are able to sell Mitel UC solutions to current Polycom customers or get carriers who sell Polycom phones to buy Mavenir (now Mitel Mobility) solutions. The amount of deep relationships the company has – coupled with those Sir Terry Matthews brings to the table – are literally enormous.
Danaher is another positive. Rich McBee, the current CEO of Mitel, comes from Danaher – which is more or less like Berkshire Hathaway but with higher levels of integration and a more hands-on approach. In other words, he has deep experience in process and procedures: the exact things you need to pull off post-merger integration.
New products and innovation is another plus. Mitel has lots of exciting things happening, but then again so does Polycom. About 18 months ago Jim Kruger and Maurizio Capuzzo (News - Alert) of Polycom told me they have many innovations coming in the future. One is Accoustic Fence or Audio Fence, and it is really cool.
In addition, Polycom doesn't have a cloud business. Mitel will be able to take Polycom innovations and deploy them as cloud services. Telemedicine is just one good example. Also, the advanced audio technology can be integrated into VoLTE solutions, allowing for voice and video calls with superior quality levels. Mitel has 2 million cloud users already, and these innovations can be rolled out to them as well as new customers. Much of Polycom's innovations will come to the Mitel Next Accelerator incubator I've described in the past.
Another important point here is that scale matters to buyers of enterprise phone systems. And the Polycom name is on par with Cisco to many people. This move cements Mitel as a major player in communications and tech and gives buyers more confidence.
Mitel is executing on its strategic vision of acquiring legacy solutions and then growing them. That’s a great description of what’s happening here.
That’s several good reasons for the merger and just two bad. Synergies (money saved) will exceed $180 million by 2018 – another reason mergers are done but not worth breaking out since you generally get these in every transaction. In all, the merger could be a very good one, but the challenge will be from companies like Lifesize – which just recently became independent. If Polycom can fend off the emerging players and those from Asia while Mitel cross-sells and gets larger accounts, then we will judge this move as a success in a few years.
Edited by Stefania Viscusi