Mitel You're Up -- What's Your Next Move?
Following a one on one with CEO Rich McBee, I have some ideas on what sorts of companies Mitel would and wouldn't be interested in acquiring.
Sit down with Mitel CEO Rich McBee for more than five minutes and you'll get a pretty clear understanding of his strategy for the company.
His thesis, and I most wholeheartedly agree with it, is that the unified communications industry needs a strong third vendor to compete with the two front-runners, Cisco and Microsoft. His strategy is to roll up industry players into a larger solution provider -- meaning, Mitel -- and turn a two-horse race into one with three contenders.
Over the last half-dozen years or so, McBee has made a few strides to close the gap -- namely with the acquisitions of Inter-Tel and Aastra Technologies. But, he came out the loser when chasing a couple of larger companies that would have fit into this "roll-up" strategy -- ShoreTel said "thanks, but no thanks" to Mitel's acquisition bid of two years ago, and private equity firm Siris Capital Group swooped in at the 11th hour and grabbed Polycom before Mitel could close on its acquisition. So now the big question for McBee is where to look next?
I had the chance last week to sit down with McBee at Mitel's analyst and consultant conference in Dallas, home of other famous wheelers and dealers such as the fictional J.R. Ewing, of the long-running '80s TV drama Dallas, and Mark Cuban, Dallas Mavericks' owner and Shark Tank regular. In my one on one, I gained a clearer understanding of what sorts of companies McBee might be interested in purchasing and about which ones he'd say, "and for that reason, I'm out."
Here are the UC submarkets I believe are most likely to catch McBee's eye.
- Enterprise Video - Mitel made a play for video with its Polycom bid, so take that as evidence that McBee sees value in that market. While Polycom is certainly the largest video vendor, it's not the only one. Its current video strategy is to OEM Vidyo technology, which is a stopgap measure at best. Mitel obviously likes the technology, so it would make sense for Vidyo to be in its acquisition crosshair. Plus, some of the mania that surrounded Vidyo's launch in 2005 has died down, so I suspect the valuation is a little more reasonable than it once might have been. Other video companies that would make sense for Mitel to look at include Zoom, Blue Jeans Network, Pexip, and Lifesize.
- UC&C Infrastructure - Mitel has been most aggressive in this area. I doubt McBee would initiate another attempt to acquire ShoreTel, but should the board get restless with the company's flat stock price and put it into play then perhaps he'd take a look. Avaya's customer base and market share certainly make it attractive, but such an acquisition would be complicated with respect to pension liabilities and debt -- and, of course, separating out the parts of the business it would want from the rest. The other two UC players with significant enough share to be meaningful for roll-up purposes are Unify, currently owned by Atos, and Alcatel-Lucent Enterprise (ALE), which is in the China Huaxin portfolio. Between the two, the pure-play Unify would be the more attractive option. Also, I believe Atos, predominantly a services company, could be convinced to keep the former Siemens Enterprise Networks services business and sell of the product areas. Mitel could take a different route and purchase a smaller vendor that provides part of the UC stack. Examples are Sonus Networks, for its session border controller, trunking, and WebRTC products; Plivo, for its cloud API platform; or Redbooth, for its team collaboration software, depending on what particular technologies Mitel is looking to add to its portfolio or further develop. Blazecast, the mass notification product Mitel acquired from Benbria this spring, is a good example of a smaller technology tuck the company is using to improve its UC positioning.
- Unified Communications as a Service - While the UCaaS model would certainly complement Mitel's current business, it changes the dynamics of the company -- running a services-first business is quite different than operating a product-oriented one. If UCaaS is of interest to Mitel, it would have no shortage of options, including 8x8, Vonage, and RingCentral. Some UCaaS providers own their own networks, while others do not; some have diverse portfolios while others are pure-plays -- and these are all factors Mitel would need to consider. I think UCaaS is low on the priority list compared to other areas, but a roll-up in that market is needed as well. Maybe McBee can become the UC roll-up king.
Mitel could go after companies in a variety of technology segments adjacent to UC, but based on my conversation with McBee I would say the following are definitively out:
- Network Infrastructure - Many UC vendors, including Cisco, Avaya, and ALE, can go to market with a combined network/voice sale. I know many businesses that believe there is value in buying voice and data gear from the same vendor, so I thought Mitel might go this route -- especially since a number of networking businesses are up for sale. This includes Avaya's networking business, Brocade's IP networking business that acquirer Broadcom is looking to sell off, and Extreme Networks. However, when I suggested Mitel might buy one or two of the above and try and take that share as well, McBee said, "No."
- Wireless LAN - I separate this out from campus or data center switching, as it seems to be a nice complement to the service provider-oriented Mavenir Systems business Mitel acquired early last year. A number of wireless LAN companies are acquirable right now, including Aerohive Networks, Mojo Networks, Xirrus, and Ruckus Wireless, which is owned by Brocade and likely to be spun out of Broadcom. While I disagree with McBee's opinion that this market is commoditizing, I do believe the value is moving away from access points and shifting to the data collected by them and analytics.
- Service Provider Infrastructure - With Mavenir, Mitel gained a footprint in a number of service providers across the globe. One avenue for growth would be to complement Mavenir with other infrastructure... but McBee said he feels comfortable with Mitel's current portfolio and sees no need for further investment in this area.
One final point on McBee's strategy is that he will not overpay for any company. When he looks at an acquisition, he sets a number and will walk away if the target company is looking for more than that. Passing on Polycom and letting it be purchased by Siris is a good example of this. Given the disruption in the space, I suspect McBee will see many good deals come Mitel's way over the next year or two.
McBee must carefully balance the need to move fast and capture market share with the need to be financially responsible and do what's best for shareholders. It's certainly not an easy task but, as they say, that's why he gets paid the big bucks.
McBee, what's your next move? You have an industry waiting to see.