Mitel is buying Polycom in a $1.96 billion deal that officials for both vendors said will create a combined company that will be better able to compete with the likes of Cisco Systems and Microsoft in a rapidly changing enterprise communications and collaboration market.
The announcement of the deal April 15 comes after months of speculation following a suggestion by activist investor Elliott Management, which in October 2015 increased its stakes in both Mitel and Polycom and recommended the two explore a merger.
The deal will merge Mitel's strengths in unified communications (UC)—with offerings for on-premises, mobile and cloud environments—with Polycom's expertise in conferencing and video collaboration technologies. It will create a $2.5 billion company with about 7,700 employees and a solid presence in most of the global markets, with strengths in such areas as cloud communications, conference phones, and video and audio conferencing.
The new company will retain the Mitel name and continue to operate Polycom as a division with its own brand. Mitel CEO Rich McBee will remain in the position, with Mitel Chief Financial Officer Steve Spooner staying in that role. Polycom directors will take two seats on the Mitel board.
"It's a good move for both," Zeus Kerravala, principal analyst with ZK Research, told eWEEK. "Conceptually, it makes a lot of sense. If you look at the two businesses, they're very complementary."
During a conference call with analysts and journalists, McBee and Spooner said the deal continues Mitel's efforts to become a larger player in the communications and collaboration market through both in-house development and outside acquisitions. McBee in the past has said that the space is ripe for consolidation and that Mitel would be one of those vendors doing the buying.
"We will be able to bring full, end-to-end collaboration solutions" to both customers and channel partners, Spooner said.
In addition, McBee stressed the need to retain the Polycom name.
"We will keep the Polycom brand," the CEO said. "It's a strong brand recognized around the world. … The Polycom brand is extremely well-recognized for technology and innovation and quality."
Elliott officials last fall built up a 6.6 percent stake in Polycom and a 9.6 percent stake in Mitel, and almost immediately began pushing the idea of the two companies merging to create a larger player in a crowded UC and collaboration market and increase shareholder value. After the deal was announced, Jesse Cohn, senior portfolio manager at Elliott and a driver of the hedge fund's growing activity in the tech industry, said the merger "makes perfect strategic and financial sense."
"The combined business will have far greater scale than either company alone, the ability to deliver a full array of products to customers, and the means to invest behind product areas that will provide stability and growth for the future," Cohn said in a statement. "Financially, the combination will create a company with a strong balance sheet, meaningful synergies, and enormous cash flow generation that can be used to engage in value-generative M&A."
Since taking over as Mitel CEO in 2011, McBee has been moving the company away from its roots in customer-premises equipment (CPE) and toward the cloud and mobile. The market was quickly shifting in the direction of both, with such trends as bring-your-own-device (BYOD) playing a large role in the mobile push. With the acquisition of Polycom, the company now has a strong video conferencing play as well. The company in the past has partnered with smaller vendors like Vidyo, but Polycom brings a broad installed base, partnerships with major players like Microsoft and wide brand recognition, Mitel's Spooner said.
Currently, about one in 10 Mitel customers use video, he said, adding that having video in place will help the vendor expand its reach.
ZK Research's Kerravala said the vendors complement each other in a number of way. Polycom has a strong presence in larger enterprises, while Mitel has primarily been a small- and midsize-business (SMB) vendor, he said. In addition, Mitel's strengths in the cloud and mobile spaces will help fill in gaps in Polycom's lineup, and Mitel's presence in Europe will complement Polycom's strength in the Asia-Pacific region.