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Okay, Mitel -- <i>Now</i> What's Your Next Move?
At the Mitel Analyst Event held last month in Dallas, I had compared Mitel CEO Rich McBee to J.R. Ewing of the '80s TV drama Dallas, as they are both wheelers and dealers in their respective businesses (see, "Mitel You're Up -- What's Your Next Move?"). About a year and half ago, Mitel acquired Mavenir to move the company into the 4G/5G market. This week the company announced it was divesting itself of the business now known as Mitel Mobile, by selling it to Xura for $350 million. Ironically, Xura was taken private earlier this year by Siris Capital, the private equity firm that scuttled Mitel's plans earlier this year to acquire videoconferencing market leader, Polycom.
When Mitel acquired Mavenir, many financial and communications industry analysts scratched their heads with confusion, as the two companies didn't fit together neatly. McBee explained the Mavenir acquisition as allowing Mitel entrance to an adjacent market, with the best yet to come as mobile networks evolve to 5G. So what's changed? The 5G opportunities still loom large and its best days are certainly ahead, so why sell now? I believe there are a few reasons that Mitel made this decision:
5G Market Dynamics Have Changed -- In the telecom world, Mitel is a small company competing with the likes of Huawei, Alcatel Lucent and other giants. The 5G market has evolved quickly and will continue to as it gets more tightly integrated with Internet of Things, making it more difficult for a small company whose focus is split between two markets to compete on a global scale. The business has been growing, but consolidation and market transitions would have made it increasingly difficult for Mitel to keep the momentum going. The mobile business unit will likely be better off as part of Xura, a larger, dedicated, carrier-focused company.
Double Down on Unified Communications -- The shedding of the mobile business will ensure that 100% of the company focus is now on unified communications. While the 5G market is changing fast, so is UC. Cloud, mobile, communications platform as a service, team messaging, WebRTC, and other trends have changed UC more in the past couple of years than in the previous five years combined.
Being Acquisition Ready -- As I pointed out in my recent post, Mitel will make more acquisitions in the near future; selling the Mitel Mobile business gives it some cash on hand to move quickly. As the UC industry continues to change, the valuation on some of the vendors it is looking at will also change, and Mitel wants to be ready to snap up who they want, when they want. I'm still of the belief that its next major purchase will be in the video arena, as there are several attractive targets. For example, Lifesize's hardware, software, and cloud story is differentiated and could enable a strong engineering-focused company like Mitel to accelerate growth. The other likely target is Vidyo, which has great technology but will need channel to scale much more from where it is. Mitel certainly has the channel, so the combination of the two could be an ideal match.
Boosting Shareholder Value -- CEOs of publicly traded companies have a responsibility to maximize shareholder value. Mitel stock, which now sits at $7.37, has had a nice run since its low in July of about $6 but is down significantly from where it was two year ago at this time, when it was a shade over $10. One way to push the stock price up is to either buy back stock or reduce debt, either of which Mitel could do with the influx of cash from the Mavenir sale.
On Dallas, J.R. like to play with a deck that was stacked in his favor, and McBee also seems to have that situation playing out; now with some cash in hand, McBee faces a rapidly evolving UC market with too many vendors, making it ripe for acquisitions. As I asked in my last Mitel post: Rich McBee, what's your next move? We are all waiting to find out.