Mitel's IPO and the Future of Communications this Decade

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Mitel's IPO and the Future of Communications this Decade

2009 was a momentous year for Nortel - finally imploding under a combination of extreme debt, acquisition challenges, Asian competition and the remnants of a financial scandal from years past. Recently I analyzed the acquisition of Nortel's enterprise unit by Avaya and further reported how we can expect to hear the details of the merger and roadmap on January 19th, 2010, one day before ITEXPO kicks off in Miami.

While I am sure there will be vibrant discussion at the conference regarding Avaya's roadmap, it should be noted that Mitel too will be a major topic of discussion at the event as it plans an IPO this year. You may recall the IPO plans of the company were shelved in 2006 - many thought this was as a result of a poor showing in the public markets by Vonage - but company execs explained the reason for the pull back had more to do with the fact they were able to bid for and acquire Inter-Tel and didn't need the public markets to consummate the transaction.

The contrast between the fortunes of Mitel and Nortel won't be lost on many industry veterans - both telecom companies excelled due to technology leadership but both had an understated approach to customer and market communication meaning PR and marketing. This is not uncommon - the world is awash in tech companies who use an engineering approach to marketing.

The company plans on using the money generated from an IPO - they hope for as much as $230 million, to repay its revolving credit line, loans and to make acquisitions. Interestingly, Mitel Networks has recorded net losses every year from 2001 until 2007 and was profitable in 2008. In 2009 - by all accounts a very tough year, the company increased sales by 6.2%. It is worth noting that the company's fiscal year ends April 30th and even though sales were up, earnings declined resulting in a net loss of $193.5 million as opposed to net income of $12.6 million in the prior fiscal year. This loss was due to a goodwill charge of $284.5 associated with purchasing Inter-Tel. This sort of charge is generally seen when assets which have decreased in value are realized.

Billionaire, serial entrepreneur, tech visionary and 4GWE/ITEXPO keynoter Sir Terry Matthews is a Mitel cofounder and currently has a 35% equity stake in the company and is in an interesting position to use the cash from this transaction to acquire one of the incubator companies he is running in Mitel's HQ.

A look at some of the Terry Matthews Incubator companies which Terry discussed onstage at ITEXPO



It is worth noting that Francisco Partners owns 44% of the company and Mitel is not the only tech company they have an interest in. Others include Aconex, AMI Semiconductor, Attachmate, Barracuda Networks, Blue Coat, FrontRange Solutions, MetaSwitch Networks, WatchGuard, WebTrends and XcelleNet.

One would imagine with such a portfolio of companies under its belt, Francisco could have made a case to have Mitel use its formidable sales and reseller channels to also sell solutions from Barracuda Networks and FrontRange Solutions the company behind Goldmine CRM software. In addition, Barracuda has a wholly owned subsidiary CrudaTel CudaTel which leverages open-source and by integrating it into the Mitel product line, the company instantly gets a Linux-based solution. There are some synergies with MetaSwich but in my experience, having a common investor does absolutely nothing to promote synergies between organizations.

Ironically one big exception is Wesley Clover, the holding company for the dozens of companies Terry Matthews has an interest in. What Terry has done with these companies is to move top management around and strategically place directors so as to foster more cooperation between the companies he owns part or all of. Other investors may want to emulate the Japanese keiretsu approach as it has definitely allowed many of the Wesley Clover companies to have an easier time selling communications and technology solutions.

With one less large competitor in the market, it remains to be seen if Mitel can use this opportunity to raise cash, raise its profile and increase marketshare at the same time. The company was the first in the communications space to promote its virtualization solutions and in fact led TMC to launch a Virtualization Summit at ITEXPO in a few weeks. It is innovation like this which has helped keep the company on the short list of many enterprise communications buyers and increased resources should just make it easier to stay ahead of the communications pack.

Still, challenges loom - who will win the war for virtualized communications? Will Mitel's early strength in the space yield to larger competitors like Avaya, ShoreTel and Cisco? Moreover, to what extent was the Nortel implosion a factor in Mitel's increasing sales? Shoretel has been coming on strong, how will this challenge Mitel going forward? Then there is the open-source space and its ability to make corporate customers believe communications solutions should be cheaper - how much margin erosion will be blamed on Asterisk and similar solutions. Then again, Avaya is being blamed for decreasing industry UC margins as well.

The upside in the enterprise communications space include video, collaboration, cloud computing, SIP trunking, mobility, wireless, unified communications, HD voice and a plethora of interconnection opportunities between these spaces such as FMC. How Mitel and the industry at large navigate these opportunities and unforeseen pitfalls in the next year may set the tone for communications industry fortunes for the rest of the decade.



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