From the SIP Trunking Experts

March 02, 2015

Mitel Continues Pac-Man M&A Strategy, Gobbling Mavenir Systems

By Doug Mohney
Contributing Editor


Mitel continues its acquisition expansion strategy, adding Mavenir Systems (News - Alert) to its portfolio with an announcement at Mobile World Congress on March 2, 2015.  Mitel will pay around $560 million for Mavenir, giving the company a footprint into the mobile service provider world.

Under the merger agreement, Mitel (News - Alert) will acquire all the outstanding shares of Mavenir common stock in a cash and stock deal.  Mavenir shareholders will be able elect to receive either an all-cash or all-stock payout for each share of Mavenir stock, getting either $11.08 per in cash share plus 0.675 of a Mitel common share or $17.94 in all cash.

Mitel expects to expand its total addressable market to approximately $14 billion by 2018, with Mavenir providing a big boost in the LTE (News - Alert) world.  Services for 4G LTE services are growing at a compound annual growth rate of 52 percent, according to analysts. 

Company officials believe that there are big synergies between Mitel's existing core of enterprise and cloud communications offerings and Mavenir's position in the LTE market.  Mavenir has an established "footprint" of over 130 mobile customers, including 15 of the top 20 mobile carriers worldwide. Industry firsts include the first live network deployment of VoLTE and RCS with MetroPCS (now T-Mobile), the first mobile network deployment of IMS-based WiFi (News - Alert) calling with T-Mobile US, and the first implementation of virtualized RCS with Deutsche Telekom.   Mavenir's portfolio of network software includes IMS, Evolved Packet Core (EPC), and Session Border Control (SBC).

Mavenir is Mitel's latest M&A move. Back in October and November, Mitel tried to convince ShoreTel shareholders that an acquisition would be in everyone's best interest, but the ShoreTel board wouldn't return Mitel's calls, despite an initial cash offer of $540 million and a follow-on offer that threw in some Mitel stock.

Before the aborted ShoreTel deal, Mitel bought Aastra (News - Alert) in 2013, and contract center call recording supplier OAISYS in the first half of 2014.

ShoreTel would have provided Mitel with a bigger footprint into the U.S. market and cloud services, but Mavenir immediately takes the company into the service provider and mobile operator world, with a lot more potential upside as LTE rollouts kick into high gear around the world over the next three years. 

In many respects, Mitel may have lucked out in failing to close the ShoreTel  deal.  Had it closed, most of Mitel's cash war chest would have been drained in acquiring ShoreTel.  Mavenir has a lot more near-term and long-term growth potential for the company than simply adding Yet-Another-Cloud-Voice provider to the company payroll.  And ShoreTel certainly didn't have the potential for overseas or mobile growth that Mavenir brings to the table.

Mitel's stock is taking a minor kick because the acquisition is expected to "modestly" hurt profits in the second half of this year.  The deal also puts further acquisitions on hold until Mavenir closes in the second quarter this year, but I wouldn't be surprised to see at least one or two more smaller acquisitions take place by the end of the year.  

Like many vendors in the telecommunications industry, Mitel is shifting its product mix away from dedicated hardware and one-time sales to a services/subscription-based portfolio.  Recurring revenue is all the rage, since it provides steady returns for companies and shareholders.

Edited by Maurice Nagle