SHARE



ABOUT THE AUTHOR


Zeus Kerravala
Zeus Kerravala is the founder and principal analyst with ZK Research. Kerravala provides a mix of tactical advice to help his...
Read Full Bio >>
SHARE



Zeus Kerravala | July 27, 2017 |

 
   

Mitel Lands ShoreTel, Amps Up Cloud Story

Mitel Lands ShoreTel, Amps Up Cloud Story With patience and perseverance, CEO Rich McBee finally reels in ShoreTel, achieves size and scale for cloud communications conversions.

With patience and perseverance, CEO Rich McBee finally reels in ShoreTel, achieves size and scale for cloud communications conversions.

Like so many technology markets, unified communications is rapidly moving to the cloud, and the on-premises vendors have had to develop a plan to capture this growing market opportunity. The on-premises market certainly isn't dead, but my research shows that UC as a service (UCaaS) is growing (18%) at about six times the rate of premises-based solutions (3%).

Mitel is one of the on-premises vendors that has done a hard pivot to the cloud, aggressively pitching its MiCloud communication services. However, Mitel is relatively small, and its size (or lack thereof) has acted as a limiting factor -- its channel and reach has had limits. This is why Mitel CEO Rich McBee has put in place an aggressive acquisition strategy, rolling up many small companies to create a larger, bigger vendor that has more customers and channel partners and is better positioned for overall growth and take share.

Coming Full Circle
Today, McBee added another piece to the Mitel puzzle, announcing a definitive agreement to acquire ShoreTel for $430 million, which is about $140 million less than the $574 million it had offered about three years ago. In hindsight, maybe ShoreTel should have sold then, but CEO Don Joos was relatively new to the company at that time, and the company had just completed its "common platform" and was beginning its own shift to the cloud with ShoreTel Sky. If I put myself in his shoes, I likely would have made the decision to leverage my new platform to grow faster than market rate. However, despite the strong shift, ShoreTel has been held back by some internal and market issues, and now a sale to Mitel does make more sense.

The combination of the two companies makes Mitel the solid No. 2 vendor in the UCaaS space. Based on its year-to-date data for 2017, Synergy Research shows RingCentral as the market leader with $86 million in revenue, Mitel/ShoreTel at $69.3 million followed by 8x8, dropping to the No. 3 spot, at $62.7 million. The full year ending 2016 shows similar numbers, with RingCentral finishing the year at $274 million and a combined ShoreTel/Mitel at $257 million, ahead of 8x8's $225 million in revenue.

Like most Mitel deals, the ShoreTel acquisition is expected to be accretive, adding to margins within a year of closing. Additionally, the company said it will realize about $60 million in savings from synergies.

One of the things I have come to appreciate about Mitel is the rock-solid financial engineering behind every deal, with the company winding up in a stronger position very quickly after closing. This, in turn, enables it to make more deals. McBee is often in the spotlight, but CFO Steve Spooner is his "Spock," as he makes the deals happen financially.

Complementary Assets
At first glance, one could look at the acquisition and, with the presumption of tremendous overlap between the Mitel and ShoreTel customer bases and channels, see this is nothing more than a consolidation play. However, a close look reveals the two businesses as quite complementary.

ShoreTel has strengths in verticals like healthcare and K-12, whereas Mitel is stronger in verticals such as hospitality and retail. Also, while both are nationwide, ShoreTel's strongest presence is located on the West Coast and in the Northeast, whereas Mitel is stronger in the Southwest and central U.S. And channel overlap is minimal. The only significant commonality is ScanSource, a distribution partner of both companies. (On a personal note, my beloved Red Sox is a ShoreTel customer, so I'll be looking for Mitel to start having analyst events at Fenway Park!)

And, with its Summit platform (acquired from Corvisa), ShoreTel gives Mitel a legitimate communications platform-as-a-service (CPaaS) offering, something the company had been lacking. In this era of digital transformation, infrastructure needs to be programmable and having a strong API platform is a key to success. UCaaS competitor Vonage recognized this a little over a year ago, acquiring Nexmo, and now Mitel has a credible offering to enable customers to build Mitel-enable applications.

Base Value
Here's an interesting point of speculation: If Mitel tapped ShoreTel to enable a more aggressive pursuit of the cloud opportunity, then why not buy one of the many UCaaS pure-plays instead? I believe the attraction to ShoreTel, and why McBee took several runs at the company, is its installed base. Like Mitel, ShoreTel has a huge installed base of on-premises customers that it can rapidly migrate to the cloud. The purchase of the Toshiba Unified Communications Systems assets, in a deal closed earlier this month, adds to that installed base.

On this morning's conference call with investors, McBee highlighted a couple of recent sizable customers wins, including a large U.S.-based multinational food processing company, and a U.K.-based global outsourcer that converted from Avaya. I'm sure Mitel will continue to be aggressive in its efforts to take share -- from Avaya and others -- but converting someone else's base is always significantly more work than converting your own. Mitel's fastest path to closing the gap on RingCentral is through conversion of its own base.

One final point I would like to make on Mitel-ShoreTel is that whenever acquisitions like this occur, there are always concerns for the customers of the acquired organization. Mitel has a strong track record of being extremely customer friendly through all of its acquisitions, and has managed to retain all of the customers -- and I'm expecting the same here. Competitors will likely jump all over the ShoreTel base, trying to muddy the waters with FUD, but Mitel is typically ahead of this curve.

In many aspects of life, the matter of size carries an ongoing debate. And for some things, like driving a car in a city, I would argue that a small car might be preferred to having an eight-passenger SUV. However, when it comes to sales of IT products and services, size and scale absolutely matters. Mitel's sweet spot has been and continues to be the massive number of small to mid-size businesses located in North America and Europe and the combined company can reach more of them. However, as it gets bigger, Mitel's global market presence will grow and the company should be able to go after larger multinational organizations.

With patience and perseverance, McBee landed a strategic fish in ShoreTel, and now the company has the size and scale to go step on the cloud gas and accelerate growth.

Follow Zeus Kerravala on Twitter and Google+!
@zkerravala
Zeus Kerravala on Google+





COMMENTS



Enterprise Connect Orlando 2018
March 12-15 | Orlando, FL

Connect with the Entire Enterprise Communications & Collaboration Ecosystem


Stay Up-to-Date: Hear industry visionaries in Keynotes and General Sessions delivering the latest insight on UC, mobility, collaboration and cloud

Grow Your Network: Connect with the largest gathering of enterprise IT and business leaders and influencers

Learn From Industry Leaders: Attend a full range of Conference Sessions, Free Programs and Special Events

Evaluate All Your Options: Engage with 190+ of the leading equipment, software and service providers

Have Fun! Mingle with sponsors, exhibitors, attendees, guest speakers and industry players during evening receptions

Register now with code NOJITTEREB to save $200 Off Advance Rates or get a FREE Expo Pass!

November 1, 2017

Your customers (internal and external) demand that you offer them the ability to connect by any means. With the adoption of cloud communications tools you now have access to an expanded portfolio o

October 18, 2017

Microsofts recent Ignite event had some critically important announcements for enterprise communications. Namely, Microsofts new Team Collaboration offering, Teams, will be its primary communicatio

September 20, 2017

Customer experience can make or break your business. But how do you achieve outstanding customer service when you're dealing with outdated organizational structure, lagging technology, dated proces

October 23, 2017
Wondering which Office 365 collaboration tool to use when? Get quick pointers from CBT Nuggets instructor Simona Millham.
September 22, 2017
In this podcast, we explore the future of work with Robert Brown, AVP of the Cognizant Center for the Future of Work, who helps us answer the question, "What do we do when machines do everything?"
September 8, 2017
Greg Collins, a technology analyst and strategist with Exact Ventures, delivers a status report on 5G implementation plans and tells enterprises why they shouldn't wait to move ahead on potential use ....
August 25, 2017
Find out what business considerations are driving the SIP trunking market today, and learn a bit about how satisfied enterprises are with their providers. We talk with John Malone, president of The Ea....
August 16, 2017
World Vision U.S. is finding lots of goodness in RingCentral's cloud communications service, but as Randy Boyd, infrastructure architect at the global humanitarian nonprofit, tells us, he and his team....
August 11, 2017
Alicia Gee, director of unified communications at Sutter Physician Services, oversees the technical team supporting a 1,000-agent contact center running on Genesys PureConnect. She catches us up on th....
August 4, 2017
Andrew Prokop, communications evangelist with Arrow Systems Integration, has lately been working on integrating enterprise communications into Internet of Things ecosystems. He shares examples and off....
July 27, 2017
Industry watcher Elka Popova, a Frost & Sullivan program director, shares her perspective on this acquisition, discussing Mitel's market positioning, why the move makes sense, and more.
July 14, 2017
Lantre Barr, founder and CEO of Blacc Spot Media, urges any enterprise that's been on the fence about integrating real-time communications into business workflows to jump off and get started. Tune and....
June 28, 2017
Communications expert Tsahi Levent-Levi, author of the popular BlogGeek.me blog, keeps a running tally and comprehensive overview of communications platform-as-a-service offerings in his "Choosing a W....
June 9, 2017
If you think telecom expense management applies to nothing more than business phone lines, think again. Hyoun Park, founder and principal investigator with technology advisory Amalgam Insights, tells ....
June 2, 2017
Enterprises strategizing on mobility today, including for internal collaboration, don't have the luxury of learning as they go. Tony Rizzo, enterprise mobility specialist with Blue Hill Research, expl....
May 24, 2017
Mark Winther, head of IDC's global telecom consulting practice, gives us his take on how CPaaS providers evolve beyond the basic building blocks and address maturing enterprise needs.
May 18, 2017
Diane Myers, senior research director at IHS Markit, walks us through her 2017 UC-as-a-service report... and shares what might be to come in 2018.
April 28, 2017
Change isn't easy, but it is necessary. Tune in for advice and perspective from Zeus Kerravala, co-author of a "Digital Transformation for Dummies" special edition.
April 20, 2017
Robin Gareiss, president of Nemertes Research, shares insight gleaned from the firm's 12th annual UCC Total Cost of Operations study.
March 23, 2017
Tim Banting, of Current Analysis, gives us a peek into what the next three years will bring in advance of his Enterprise Connect session exploring the question: Will there be a new model for enterpris....
March 15, 2017
Andrew Prokop, communications evangelist with Arrow Systems Integration, discusses the evolving role of the all-important session border controller.
March 9, 2017
Organizer Alan Quayle gives us the lowdown on programmable communications and all you need to know about participating in this pre-Enterprise Connect hackathon.
March 3, 2017
From protecting against new vulnerabilities to keeping security assessments up to date, security consultant Mark Collier shares tips on how best to protect your UC systems.
February 24, 2017
UC analyst Blair Pleasant sorts through the myriad cloud architectural models underlying UCaaS and CCaaS offerings, and explains why knowing the differences matter.
February 17, 2017
From the most basics of basics to the hidden gotchas, UC consultant Melissa Swartz helps demystify the complex world of SIP trunking.
February 7, 2017
UC&C consultant Kevin Kieller, a partner at enableUC, shares pointers for making the right architectural choices for your Skype for Business deployment.
February 1, 2017
Elka Popova, a Frost & Sullivan program director, shares a status report on the UCaaS market today and offers her perspective on what large enterprises need before committing to UC in the cloud.
January 26, 2017
Andrew Davis, co-founder of Wainhouse Research and chair of the Video track at Enterprise Connect 2017, sorts through the myriad cloud video service options and shares how to tell if your choice is en....
January 23, 2017
Sheila McGee-Smith, Contact Center/Customer Experience track chair for Enterprise Connect 2017, tells us what we need to know about the role cloud software is playing in contact centers today.