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Mitel buys Polycom for $1.96B in enterprise communications consolidation play

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As more enterprises move their communications services over to IP networks and cloud-based services, we’re seeing an increasing amount of consolidation as the businesses that serve them continue to grow to provide end-to-end services — and to shore up against smaller, newer and less expensive offerings from the likes of Slack, Skype, Google Hangouts and more. Today comes that latest move in that sphere: Mitel announced that it would acquire Polycom in a cash-and-stock deal with a total value of $1.96 billion*, creating a company with combined sales of $2.5 billion and 7,700 employees.

Mitel and Polycom have been in negotiations for nearly 10 months, Mitel said, and there was a report earlier this month in Bloomberg hinting that a deal between the two was imminent. They share a common (and recent) investor in the form of Elliott Management Corp., who had been urging the two to combine to compete better with rivals.

Polycom, based out of San Jose, will continue to keep its branding, Mitel said, with the overall company headquartered in Ottawa, in Mitel’s current HQ. Both companies are publicly traded and have been acquirers of smaller companies themselves, but not on the prolific level of some rivals like Cisco. This is only Mitel’s sixth acquisition, according to Crunchbase.

“Mitel has a simple vision – to provide seamless communications and collaboration to customers. To bring that vision to life we are methodically putting the puzzle pieces in place to provide a seamless customer experience across any device and any environment,” said Mitel CEO Rich McBee in a statement. “Polycom is one of the most respected brands in the world and is synonymous with the high quality and innovative conference and video capabilities that are now the norm of everyday collaboration. Together with industry-leading voice communications from Mitel, the combined company will have the talent and technology needed to truly deliver integrated solutions to businesses and service providers across enterprise, mobile and cloud environments.”

Both companies compete against the likes of Cisco and Avaya. Mitel is perhaps best known for its IP telephony solutions, including PBX systems, while Polycom is a leader in conferencing services. They also cover SIP technology, and customers span 82% of Fortune 500 companies.

Polycom’s acquisition by Mitel comes at a key time in the world of enterprise communications and collaboration.

On one hand, it is a time of massive change and evolution. For years a lot of the services that companies used were based on legacy networking, but in the last decade there has been a big shift to IP-based networks for many of these services.

However, at the same time the whole space has been massively disrupted by startups that are upsetting by tapping into the next phase of digital services — the Internet. Companies like Microsoft by way of services like Skype and Yammer, and smaller startups like Slack, are overturning the whole idea of how people who are not in the same office floor can communicate and collaborate for work.

These solutions are way cheaper than a lot of the legacy offerings; they tap into the cloud-based services that are now ubiquitous to share and work on files; and they are also built in very user-friendly ways, based around tech that ordinary consumers are using.

All of this poses big challenges and possible threats for incumbent companies like Mitel — which has been around since 1972, but also opportunities. This is something that companies like Cisco and IBM also realise and are trying to capitalise on with acquisitions and strategic changes.

The deal is one of the bigger in enterprise collaboration and communication collaboration in recent times, but not the only one. In February, Cisco acquired enterprise collaboration startup Acano for $700 million. And IBM’s recent acquisitions of Ustream and Clearleap also give it a stronger position in enterprise conferencing, while Atlassian acquired BlueJimp. Among startup consolidation, Fuze acquired LiveMinutes last year, too.

Mitel was in the news several years ago for filing a patent infringement case against Facebook covering two areas: technology for calling up web pages in text-based communications (which you get if you type in a URL in a message or post), and its Internet telephony services. Facebook retailiated with patent suits of its own, using patents originally owned by AOL (owner of TC). Facebook and Mitel settled out of court in 2013. The Polycom deal will give Mitel a combined portfolio of over 2,100 patents and more than 500 patents pending, Mitel says.

The acquisition — in which Polycom stockholders will get $3.12 in cash and 1.31 Mitel common shares for each share of Polycom common stock, “or $13.68 based on the closing price of a Mitel common share on April 13, 2016” — is a 22% premium to Polycom shareholders based on Mitel’s and Polycom’s “unaffected” share prices as of April 5, 2016, the companies say. It is expected to close in Q3 2016.

Note: the $1.96 billion figure is based on Wednesday’s closing price, whereas some publications are reporting $1.8 billion, based on Thursday’s closing price.

Featured Image: Anton Balazh/Shutterstock