Mitel Slides Into Second

Convergence Corner

Mitel Slides Into Second

By Erik Linask, Group Editorial Director  |  December 15, 2017

Mitel (News - Alert) announced in July that it’s acquiring ShoreTel, after all. 

Three years after a failed attempt at the same deal, Mitel gets a discount in the neighborhood of $100 million for the right to call itself the No. 2 player in the growing UCaaS market, slipping between market leader RingCentral (News - Alert) and 8x8.

Frankly, it shouldn’t come as a huge surprise. Mitel has been on a spending spree for several years. After its deal to buy Polycom broke down a year ago, you knew it had big plans. Meanwhile, ShoreTel has been looking for a buyer. And, frankly, neither of the two has been able to make quite as big a dent in the market as desired. At least not organically. 

Meanwhile, their top three pure play UCaaS competitors have continued to grow. 

The only way either of them was likely to gain ground quickly was through acquisition. And given Mitel’s propensity for acquisition and assets, this was inevitable.

Then, when you look at the on-premises market, which still generates well over half the company’s revenue, and consider Avaya’s bankruptcy and Toshiba exiting the business, it’s not hard to see Mitel as the No. 2 there as well, behind Cisco.

In fact, anyone who’s followed Mitel and listened to CEO Rich McBee (News - Alert)  knows the company has not only not shied away from talk of further deals, but has actually embraced it. During his ITEXPO keynote back in 2015, McBee pointed out: “We’ve added four companies in the last 18 months, and we will continue to add companies, and we will continue to consolidate the market.”

As Jon Arnold (News - Alert), principal of J Arnold & Associates, commented: “Mitel wants to be a big fish in a fragmented UC market, and as the likely successor to Avaya as the No. 2 vendor behind Cisco – Microsoft is kind of in its own bubble. You have to assume some of the net new cloud business is coming at Avaya’s expense. This also puts Mitel in a very strong position in the pure UCaaS market, which is what it has been after all along.”

Naturally, the deal grows an already increasing recurring revenue base, strengthening McBee’s conviction that his company can ­­– and will – lead the digital transformation charge.

“If you look at Mitel’s business model and the idea of transformation, it has been moving toward a recurring revenue model,” notes Frank Stinson (News - Alert), partner at Intellicom Analytics. “That’s one of the reasons for an aggressive cloud strategy, and purchasing ShoreTel is a big step in that direction.”

According to Mitel, there is very little overlap in the two channel programs, which is a huge boost to Mitel’s channel, but also creates an interesting scenario in that ShoreTel’s partners effectively have been selling against Mitel for years and now have to flip their pitch 180 degrees. Given the challenges ShoreTel experienced when integrating M5 into its business, it’s hard to say how customers or partners will react, or how much work will have to go into doing it again for those same constituencies.

“The channel is really going to bear the burden for migrating users,” added Arnold. “When ShoreTel acquired M5, it had huge migration issues, and it took a long time.”

That said, Mitel has plenty of experience going back a decade to its Inter-Tel and Aastra acquisitions and, of course, with its more recent string of deals, including Toshiba’s UC assets. Both Arnold and Stinson agree that a strong migration plan and its execution hold the key to success.

Two additional factors play into Mitel’s favor here. Stinson pointed to his firm’s research, noting that the issue of maximizing legacy investments while developing a strong path forward plays right into Mitel’s overall strategy and capabilities. 

“There are questions in the market, which is leading many enterprises to be more likely to consider cloud as an alternative to traditional on premises, including existing products reaching end of life or end of support status, and diminishing confidence in their existing vendors,” he said.

The other tremendous benefit – aside from instantly doubling the size of the company – is Mitel’s global position, which is significantly stronger than not only ShoreTel’s, but also than its UCaaS competitors. It creates the enviable situation, if it can successfully work through its looming transition, where Mitel can leverage that global presence to steamroll many of its competitors. Which then begs the question: Will we see more consolidation among  the other market players to keep pace?  One almost has to believe Mitel has now started writing that script for them.

What we know for sure is Mitel continues to disrupt the market balance in line with McBee’s declarations. But is it a good move?

“It has to be,” said Arnold. “You didn’t marry the girl the first time. But you still wanted her, and you finally got her.”

Edited by Erik Linask