Mitel Acquires ShoreTel: A Good Thing for the Partner Channel?

Today we all woke up to the news that Mitel has entered into a definitive agreement to acquire ShoreTel in an all-cash transaction valued at approximately $530 million.  According to company press releases, the move was made to “accelerate growth by investing faster into the UCaaS market, creating a supplier with the scale and technical capabilities to enable customers with new cloud-based solutions and applications.”

As a member of the ShoreTel Cloud Advisory Council, and as the number one Cloud Services Distributor in 2016 for ShoreTel, I think the move makes great sense for Mitel. Don Joos, the CEO of ShoreTel, spoke at the Telarus Partner Summit on June 22, 2017 and told us that ShoreTel was 100% committed to growing its UCaaS revenue, at the expense of its hardware business. Examples of this commitment can be found in product development, where all new features, interfaces, etc. are being developed exclusively for the Connect platform (shown here).

Add to that the fact that most of ShoreTel’s new hires have been software developers and former employees of cloud-only UCaaS competitors, and it's obvious that Mitel just acquired a company with an intense cloud focus.

The acquisition of ShoreTel also fills the multi-tennant UCaaS product gap, giving Mitel a “soup-to-nuts” cloud solution that now includes hosted/managed PBX, multi-tenant cloud UC, and “platform as a service” – a series of open API’s that allow clients to develop their own custom apps that integrate with the phone system through software. There can be little doubt that Mitel’s combined technology portfolio will be a power-house in the UCaaS marketplace for the foreseeable future.

In addition to the cost savings and other financial aspects of the deal, we feel that Mitel got a screaming-good deal. When you peel back the equipment sales and support revenue away from ShoreTel, it has UCaaS revenue in the ballpark of $150M. Other “pure play” UCaaS companies with similar revenues sell for up to 10X revenue, which would give ShoreTel a $1.5B valuation. The fact that the market still sees ShoreTel as a phone system manufacturer dramatically hurt its multiple, which ended up being just 3.5X it’s cloud sales.

It is expected that the deal will finalize before the end of 2017, with integration beginning in earnest in Q1 2018.

Having been a ShoreTel dealer for almost a decade, and later a ShoreTel master agent, I’ve very good friends with many people at ShoreTel. This much I do know: there is no love loss for Mitel. Culturally, ShoreTel and Mitel have been bitter rivals for years. Bringing together two companies who are both trying to pivot from manufacturing to the cloud, with employees that are more-or-less being forced to work with the ‘enemy’, will be a challenge. The industry, and the Channel, will be watching closely to see how the combination of two progresses as we near the end of 2017.

We at Telarus are optimistic that the Mitel executives will embrace the UCaaS Channel that ShoreTel has worked tirelessly to build. We are seeing fantastic momentum with ShoreTel’s hybrid solutions (some hardware, some cloud) and our partner’s pipeline has been growing steadily over the course of 2017.

If Mitel will embrace their vision, invest in the Channel, and retain the all-star employees that run the Channel, we are optimistic that Mitel will be a force to be reckoned with, giving the ‘born in the cloud’ UCaaS providers a run for their money.

What do you think about the mega-merger? Let us know in the comments field below!