Mitel & Polycom: More Than Just Another Acquisition
The technology and product range, combined with the proven skill of the Mitel team in effective integration, makes the new Mitel a potentially formidable force in the business communications market.
Friday Mitel announced the acquisition of Polycom. Many seem to see this as a simple acquisition/merger, however I think it is more of a precursor to where the industry is going.
First the facts: Mitel acquired Polycom for a combination of shares and cash at a 22% premium to the "pre-hyped" value of Polycom. The acquisition will likely close in the third quarter, giving Mitel a $2.5 billion revenue stream. As there are virtually no services in that revenue, this means that the resulting Mitel is now bigger than Avaya (roughly 40% of Avaya's $4 billion in revenue is services, while about 60% is products and product support revenue, equivalent to Mitel). The merger will be accretive in 2017. Polycom will retain its brand name and operate as a division of Mitel.
In many ways, this acquisition is the next step on CEO Rich McBee's vision of transforming Mitel from a mid-market telephony vendor to a player positioned to benefit from the major transformations in the market: collaboration, mobility, global footprint, and cloud. (See related post, "Mitel's Strategy: Mavenir... and Beyond.")
Previous acquisitions such as that of Aastra Technologies and Mavenir Systems added key strengths globally and in wireless/cloud, respectively. In fact, Mitel is now number one in enterprise VoIP in Europe and has a very strong cloud position. That cloud focus is also integrated with a strong mobile focus. Clearly, mobility and mobile integration is both an underserved and potentially huge growth market going forward. (See related post, "Mitel Makes Big Play in Mobile Enterprise.")
In the communication and collaboration space today, Cisco and Microsoft are unique in that they are both very large companies with boatloads of cash, other large business areas, and a focus on the business communications space. In addition, there are a number of other players, mostly traditional telecom vendors such as Avaya, Unify, NEC, and Mitel. Of these companies, Mitel is the only one that has the degrees of freedom to be able to pursue a consolidation/optimization strategy in the space.
Avaya and Unify have been saddled with the high debt of a leveraged private equity buyout, and now Unify is part of Atos, a managed services company. While Atos has the scale and capacity to do acquisitions, it is not clear that they have the strategic focus or proven success to spend more in the short term. While a large global player, NEC is primarily a Japanese market player and is limited as part of a large multi-area technology company that does not have a history of aggressive acquisitions. All three of these companies are limited in their ability to augment their portfolio through acquisitions and mergers.
Mitel, however, as a public company, has been able to do a number of acquisitions in pursuit of creating a differentiated offering with a mobile-focused capability set. This capability to do aggressive and significant acquisitions has set Mitel apart, and Rich McBee has exploited it to grow the business, both in coverage areas and revenue.Polycom: The Next Step
The acquisition of Polycom can be seen as the next step in the Mitel journey to create an integrated competitor in this space. The addition of Polycom brings three key elements: leading video solutions in the enterprise communications marketplace, a new set of traditional sales channels (especially in the AV space), and partnerships in the highest growth segments of the industry, cloud and Microsoft Skype for Business.
Clearly, the combination of the traditional Mitel communications platforms with the Polycom video services will deliver the only fully integrated solution with a large video installed base next to Cisco. However, as a communications and collaboration platform vendor, Mitel actually has some key added advantages.
In the Mavenir acquisition, Mitel took advantage of leading 4G/LTE technology and now has a deployed solution in 47 of the top 50 mobile markets. Combine this with the fact that Mitel has a Mitel Mobile Virtual Network Operator (MVNO) established clearly shows that Mitel is focused on the mobile facets of next-generation communications and collaboration. (See related article, "Can Mitel Break the 'Curse of Mobile UC?'") Many in the UC community have decried the lack of true mobile integration. With the Mavenir and Polycom components, Mitel is in an interesting position to pursue the goal of providing a truly mobile collaboration and communications solution. Mavenir brought the mobile cellular expertise and relationships, and now Polycom brings the video processing to deliver quality video to those mobile endpoints. If Mitel can build on this capability, it can create a solutions set that will have a significant leg up in the mobile space.
In the cloud space, Mitel is growing at 44% per year. This combination of strong cloud presence and mobile/video capability places Mitel in a unique position to deliver a complete mobile cloud solution, a clear direction the overall industry is going in.New Challenges
While there are clear and compelling opportunities in the traditional enterprise, emerging cloud, and emerging mobile cloud spaces, the Mitel acquisition presents interesting challenges in two of Polycom's current markets: the IP Telephony Service Providers (ITSPs) and the Microsoft Skype for Business spaces.
Challenges, yes, but opportunities as well. In the ITSP space, Polycom phones are used by the majority of cloud telephony providers as the primarily endpoints that are bought with their cloud deployment. This is true for independent cloud vendors like RingCentral and 8x8, as well as the more than 10 million seats of cloud telephony based on BroadSoft and sold by over 200 cloud providers. This market will need significant focus to maintain and grow the Polycom brand versus alternatives such as Yealink and Snom. The fact that Polycom devices are from a North American-based company may help, as well as the inherent quality for which Polycom is known.
The Microsoft/Polycom relationship may prove more challenging. While Polycom has been a key partner of Microsoft for Lync/Skype for Business and has been a significant element in enhancing the Microsoft offer, Microsoft has generally not partnered well with companies that have competitive platforms. This was made clear in the transition Microsoft made from Interactive Intelligence as the preferred contact center partner to Genesys after Interactive announced their PureCloud offering that included a UC cloud platform. However, Microsoft may see the benefit in an ongoing relationship with Mitel/Polycom, especially if it sees the value in the mobile integration capabilities that Mitel can bring. This will be a critical area for the new Mitel/Polycom team to focus on.
While coming with some challenges, overall this acquisition/merger creates a very capable player in the business communications space. By combining market leading EMEA positions, third in North America, leading video solutions, and next-generation wireless, the Mitel team has a palate of technologies to forge new capabilities and solutions. This technology and product range, combined with the proven skill of the Mitel team in effective integration makes the new Mitel a potentially formidable force in the business communications market. Another key opportunity is to leverage the Polycom customer and channel relationships with other Mitel products and capabilities.
The industry is going to continue to see consolidation and change. The deployment scale and channel market segmentation that enabled the PBX market to support a large number of players is rapidly falling away with VoIP, cloud, and other new technologies. The resulting consolidation assures that a few strong vendors will survive and thrive. This merger makes it clear that Mitel is focused to be one of those.
For related coverage, see "Mitel Finally Acquires Polycom," by Zeus Kerravala and "Mitel Acquires Polycom -- The Good, the Bad, and the Ugly," by Andrew W. Davis and Ira M. Weinstein.