UPDATED 14:36 EDT / JULY 27 2017

CLOUD

After dismissing acquisition rumors, Mitel picks up ShoreTel for $530M

Amid reports that team messaging giant Slack Technologies Inc. is looking to raise $250 million from investors, another major player in the enterprise communications industry has inked a nine-figure deal of its own.

Mitel Networks Corp. today announced an agreement to acquire publicly traded competitor ShoreTel Inc. for $530 million in cash. The deal comes a year after ShoreTel hired JPMorgan Chase & Co. to explore the possibility of a sale. Several analysts predicted at the time that Mitel will seek to swoop in, but a spokesperson dismissed the speculations on the grounds that a deal wouldn’t make “financial sense.”

Two things have changed since then. The first is that the communications giant picked up $385 million through the sale of its carrier business to private equity firm Siris Capital Group last December. Second, and more importantly, ShoreTel’s stock price has fallen from around $8 to a low of $5.75 earlier this month.

Mitel had sought to buy the company once before in 2014 at $8.10 a share but the bid was rejected for being too low. The decline in ShoreTel’s stock price over the past few quarters evidently created the conditions necessary to make a deal happen.

Investors are set to receive $7.50 per share, which may be lower than the original bid but represents a nonetheless respectable 28 percent premium over yesterday’s closing price. As for Mitel, the acquisition is set to put it in a much better position to address the accelerating shift to cloud-based communications tools.

The deal will more than double the company’s revenue from so-called Unified Communications as a Service or UCaaS products to $263 million per year. This in turn is set to increase the share of total sales that is generated by subscriptions to 39 percent. And to top it off, Mitel expects to save as much as $60 million annually thanks to the usual “synergy” opportunities.

All these financial gains could help the company compete more effectively against Cisco Systems Inc., 8×8 Inc. and the other deep-pocketed players in the UCaaS market. The combined entity will also have 3,200 channel partners to help drive sales efforts along with a greatly expanded product portfolio.

The acquisition is expected to be completed later this quarter if everything goes according to plan.

Image: Mitel

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