Mitel and Avaya

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The Wall St. Journal is reporting that Mitel has made an offer to acquire Avaya. Maybe. It’s 4AM in Singapore, but I have a few thoughts on this.

While it’s not surprising, it’s probably not that realistic either.

Mitel

It’s not surprising for several reasons. First, last month Mitel signaled it was ready to start acquiring companies again. I think they actually said something about resuming its consolidation of the industry or something along those lines. Ok, that’s worked well for them in the past. Secondly, Avaya is rumored to be a target for acquisition. So, an offer isn’t too surprising or unreasonable.

However, the offer itself is likely unreasonable. The answer to what a company is worth is complex, but ultimately it’s what the market will bear. I expect Avaya will sell for more than the $2.2 – $2.4B that Mitel has reportedly offered. Avaya shareholders will also likely want some cash, and it appears Mitel only offered stock.

Mitel may or may not have made an offer, but i am sure of a few things. I am sure if they did make an offer it was low. The only thing Mitel loves more than buying companies is stealing them. If Mitel made a bid, it really just started the auction.

$2B is a lot for Mitel, but it’s about what it offered Polycom’s shareholders years ago. Oddly, news of the Polycom bid broke when I was in Asia too. Mitel was recently acquired by SearchLight.

Mitel absorbing Avaya would be more complex than anything Mitel has attempted to digest. The portfolios have significant overlap, and consolidation or rationalization will be a huge undertaking. On the other hand, there is some symmetry to a merger. Mitel is stronger in the mid-market and Avaya is stronger in enterprise. Mitel has a UCaaS offer, and Avaya has a leading contact center suite and managed services business.

Mitel’s CEO McBee has proven to be effective at M&A. I’m sure there’s significant synergies to realize if they merge.

Neither company can really afford a long term distraction. Both have had some management shake-ups and they both have stakeholders to calm.

I just heard the news. At this time, I wouldn’t be shocked if it was true or that I dreamed the whole thing. There’s no doubt in my mind that Mitel has looked at Avaya, and I’m sure they are not alone.

Avaya has two major assets that attract different types of buyers. The first asset is a huge customer base. That will attract competitors like Mitel that think they can manage/upgrade that base better than Avaya can.

The second asset is a transformation opportunity. It’s actually why Mitel recently went private itself. Avaya is transforming itself in many ways, but lagging in its public cloud offer. PE types that think they can transform Avaya faster than Avaya will itself see dollar signs here. Mitel’s UCaaS offer is the key. The Mitel UCaaS offer, the linchpin to the transformation play, was built by Don Joos at ShoreTel after leaving Avaya.

I spent the last few days with Avaya, including its CEO Jim Chirico. I can say it was a good week and an excellent APAC event. I continue with Avaya next week at another event. I suspect the topic of conversation may shift from its new Digital Workspace and video solutions to possible mergers and acquisitions.

Dave Michels