Quick Thoughts on RingCentral and Mitel
It is rare when industry news is both surprising and predictable at the same time.
After markets closed yesterday, RingCentral and Mitel announced a new partnership.
On the surface it looks similar to previous RingCentral partnerships with Avaya, Atos, and Alcatel-Lucent. Like the others, Mitel will cease to develop its own UCaaS solution and instead position RingCentral’s services for its customers that want UCaaS. However, each of these deals is a little different.
First, this one is a three party deal – RingCentral pays Mitel, Searchlight (the PE owners of Mitel) paid RingCentral. It does not appear that SearchLight has exited its ownership position in Mitel. RingCentral’s payment to Mitel is $650M but what that covers isn’t that clear. The press release says “to acquire intellectual property rights and patents.” That’s different. For example, with Avaya, RingCentral paid an advance on commissions. Also, the companies declined to comment on the patents that are transferring.
Central to the IP though is Mitel’s CloudLink tech. This creates a way for Mitel PBX solutions to integrate with cloud-delivered services. RingCentral sees this as a differentiator, but has never differentiated its offers in the past. We shall see.
Searchlight (not Mitel) is investing in a RingCentral stock purchase of $200M. It already saw a nice return on that with the news of the deal as the announcement has already caused investor firms to increase price targets on RingCentral stock.
Also, wrapped up in this deal is a change in leadership at Mitel. Mary McDowell moves from CEO to Chairman of the Board, and Tarun Loomba was promoted to CEO without any explanation or announcement. What Mitel’s board does as a private subsidiary within SearchLight isn’t clear. Nor is it clear if RingCentral obtained a board seat as it has in prior partnerships.
Mitel will now focus on premises-based UC, a market that some estimate at $50B. It will reduce its R&D spend as it no longer needs to catch-up on UCaaS. Mitel has also been developing CCaaS and the future of that product is not clear. When asked, Loomba reiterated this is a UCaaS partnership. He did not address CCaaS.
Mitel has previously announced plans to improve its CCaaS offer and also announced a reseller arrangement with Five9 earlier this year. However, master agent economics suggest that Mitel will now favor CCaaS solutions from RingCentral (which enjoys a strong partnership with NICE CXone).
None of that above is too surprising as RingCentral has done this a few times now. However, it’s a big change for Mitel which appeared to be positioning its SaaS story for an IPO. Without a cloud business, an IPO seems less likely. Mitel has spent a lot of time and effort on building out its UCaaS portfolio.
There is opportunity for a premises-first UC vendor, and it’s even possible that Mitel and Unify team up in this space. Atos has indicated it is about to sell its Unify business.
There’s still a lot here to uncover, and now that it’s announced Mitel will fill in some gaps. Right now, it reaffirms RingCentral’s strategy, changes Mitel’s trajectory, and gives Searchlight a potential return on its Mitel investment. Mitel’s customers likely come out ahead with an improved migration to UCaaS with a more robust and globally available offer.