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Mitel Buys Mavenir: the 'Why' to Be Determined
Mitel announced this morning that it has entered a definitive agreement to acquire Mavenir Systems, a provider of software-based networking solutions for mobile carriers, for the equivalent of $560 million in a combination of cash and Mitel stock.
Mavenir's product line includes software for voice over LTE and voice over Wi-Fi (VoWi-Fi), IP Multimedia Subsystem, and rich communication services (RCS). After the transaction closes sometime in mid 2015, Mavenir stockholders will own approximately 16% of Mitel. Mavenir racked up a $24.8 million loss in its most recent fiscal year (up from $15.3 million in 2013) on sales of $129, and increase of 31.4% over 2013.
In an early morning analyst's call, the bulk of the questions aimed at determining what type of synergies might be created; the answers were not very enlightening. Mitel sells telephony and UC solutions to enterprise customers, and Mavenir sells software to mobile operators. Mitel CEO Rich McBee alluded to potential R&D synergies somewhere down the road, and Mavenir CEO Pardeep Kohli raised the possibility that its session border controller, for mobile operators, might now find a market with enterprise customers as well.
The executives rattled off many important buzzwords, including mobility, cloud, LTE, IP, virtualization, BYOD, and even SDN. However, lacking was anything approaching a meaningful vision.
They estimated that the combined overhead would save the company $20 million per year, and McBee hinted that Mitel's IP expertise would be valuable to Mavenir's LTE initiatives. In response to a question from consultant Sheila McGee-Smith, a fellow No Jitter blogger, McBee said: "What I look forward to is getting our engineering teams together ... and let them innovate away." I didn't find this a confidence builder.
With last year's Aastra acquisition, Mitel clearly selected a company in its product space with little in the way of customer overlap. While Mitel and Mavenir have zero customer overlap, they don't seem to have any recognizable synergy either -- at least certainly not in the near term. The mobile operators' obsession with the consumer rather than the enterprise market doesn't offer a lot of hope.
One potential synergy (though not mentioned on the conference call) is the new VoWi-Fi product Mavenir is targeting at cable operators. The VoWi-Fi capability in the iPhone 6 (currently supported only by T-Mobile) and the introduction of Cablevision's VoWi-Fi Freewheel service has put the idea of VoWi-Fi back on the radar screen, and other cable operators are apparently considering similar offerings. Mitel does have an enterprise VoWi-Fi capability in its product line.
Another potential would be something that integrates Mitel's UC&C capabilities with RCS, a GSM Association initiative, marketed under the name "joyn," that would allow mobile operators to offer enhanced services in their networks. Potential RCS capabilities include presence, chat, emoticons, location share, file sharing, and video sharing (see what I see). Unfortunately, most of those capabilities already exist in over-the-top services. And, as reported in the Wall Street Journal, the tension between mobile operators and Internet companies is on display this week at Mobile World Congress in Barcelona, where Facebook CEO Mark Zuckerberg participated in a keynote discussion today. In the U.S., only Metro PCS (now T-Mobile) has introduced anything with regard to RCS.
While it's nice to see Mitel stretching its muscles, this buy might be sending the company to the chiropractor -- the stock was down by as much as 16% by mid morning. By its own admission, Mitel is focusing on growth rather than synergy, but it appears that is not a message that resonates with the market. McBee is trading away 16% of the company for a position in an adjacent market serving the mobile operators. It would be interesting know what else he sees here.
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