Mitel to buy ShoreTel for $430 million to create unified communications powerhouse or is it a sign of a declining market?

By Ron Pickett

Combining the two companies makes Mitel number two in the Unified Communications as a Service (UCaaS) market, according to the company.

Mitel will pay $7.50 a share for a total value of $430 million in an all-cash deal.

Mitel attempted to buy ShoreTel in 2014 in an unsolicited offer for $8.10 a share and the ShoreTel board rejected the offer, saying that it significantly undervalued the company. That has obviously changed as ShoreTel peaked at $10.32 a share in December 2015 before bottoming out at $5.75 a share earlier this month.

Mitel revenues declined last year from $1.025B to $987.6M. ShoreTel revenues minimally grew $359.6 to $360.3. The UCaaS market is essentially flat for both parties.

When markets show little organic growth, M&A’s occur. Are we near the end of the telephone system/UCaaS market as we know it? Are we witnessing creative destruction?

Creative destruction is a process through which something new brings about the demise of whatever existed before it. 

Creative destruction is synonymous with disruptive technology. One example is thesmartphone, which all but killed the market for cell phones and PDAs, MP3 players, point-and-shoot cameras, wrist watches, calculators and voice recorders, among other things.

Just ask any millennial what they think of a desk phone!

Businesses are starting to use Enterprise Social Networks (ESNs). ESNs are gaining traction among enterprise collaboration solutions enabling users to leverage on social workflow capabilities. The social workflows provided by ESNs can integrate with other corporate applications or can be used independently, improving employee productivity.

The high adoption of cloud technology in North America is a major reason for the continuous adoption of ESNs and services by end-users.

The major vendors in the enterprise collaboration market include Facebook, Inc. (U.S), IBM Corporation (U.S.), Microsoft Corporation (U.S.), Atlassian Corporation PLC (U.S.), Igloo, Inc. (Canada), Slack Technologies, Inc. (U.S.), VMware, Inc. (U.S.), Jive Software, Inc. (U.S.),Salesforce.com, Inc. (U.S.), and Ninian Solutions Limited (U.K.).

Are companies depending exclusively on selling UCaaS at risk?

Food for thought!