ShoreTel
Unified Communications as a Service

Mitel to buy ShoreTel for $430 million to create unified communications powerhouse

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Sometimes combining two companies that compete in the same market provides a quick way to leapfrog your market share. That was likely the thinking behind Mitel’s decision to buy ShoreTel this morning for $430 million.

Combining the two companies catapults Mitel to number two in the Unified Communications as a Service (UCaaS) market, according to the company.

As for ShoreTel, while it will get absorbed in the deal, it received a 28 percent premium over the closing stock price yesterday. The deal looks like this: Mitel will pay $7.50 a share for a total value of $430 million in an all-cash deal.

It’s worth noting, however, that Mitel attempted to buy ShoreTel in 2014 in an unsolicited offer for $8.10 a share and the ShoreTel board rejected the offer, saying that it significantly undervalued the company. That has obviously changed as ShoreTel peaked at around $10.32 a share in December 2015 before beginning a drop that bottomed out at $5.75 a share earlier this month. When Mitel came a-courtin’ this time, ShoreTel didn’t play hard to get. But it could have gotten more in 2014.

With the stroke of a pen, Mitel now has almost doubled its UCaaS revenue to $263 million, and there will be other efficiencies achieved by combining the two companies with similar markets.

“This is a very natural combination that enables us to continue to consolidate the industry and take advantage of cost synergy opportunities while adding new technologies and significant cloud growth to our business,” Mitel CEO Rich McBee said in a statement.

According to Synergy Research, the UCaaS market is divided into two segments — standalone applications and business suites. Mitel and ShoreTel are part of the suite side of the market along with RingCentral, 8×8 and Vonage.

While Synergy estimated that the overall UCaaS business was around $4 billion as of January, 2016, two-thirds of this was allocated to stand-alone applications like video conferencing with a third going to business suites where Mitel and ShoreTel live.

The two companies when combined will have 3200 channel partners and 4200 employees worldwide. The deal is still subject to regulatory and shareholder review before it can close.

What’s never clear in a deal like this is how well the two companies will work together as a single entity, what impact it will have on employees and how Mitel will absorb and service ShoreTel’s customer base. All of that remains to be seen, but for today, if all goes as planned, the two become one.

Featured Image: John Lund/Getty Images