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Mitel to Acquire Polycom, Expand in Videoconferencing Market

Zacks Equity Research
Updated

Mergers and acquisitions (M&A) continue to take place in the seamless communications and collaboration segment leading to consolidation in the market. Recently, IP-based integrated communications solutions provider Mitel Networks Corp. MITL has announced that it will acquire videoconferencing giant Polycom Inc. PLCM for approximately $1.96 billion.

Per the deal, Polycom's shareholders will receive $3.12 in cash and 1.31 Mitel shares for each Polycom share they own, or $13.68 based on Mitel’s closing share price on Apr 13, 2016. The deal is expected to close in the third quarter of 2016, subject to shareholder and regulatory approvals and other customary closing conditions.

At present, Polycom is the only pure-play unified collaborative solutions provider and holds an estimated 32% market share. Management has decided to strengthen its foothold in the unified collaborating cloud computing, collaboration software, and mobile video markets. Meanwhile, Polycom’s RealPresence platform is gaining considerable popularity.

The combined entity will be a major unified collaboration and communications service provider for small and mid-sized enterprises and will achieve economies of scale to cope with their larger peers in this market such as Cisco Systems Inc. CSCO and Huawei Technologies Co. Ltd. Notably, Polycom has an existing agreement with Microsoft Corp. MSFT for supplying IP equipment to customers using Microsoft's Office 365 and Skype for Business products. The proposed merger could further expand the scope of this contract.

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Mitel expects the transaction to be accretive to its shareholders in 2017 and can generate operating synergies of approximately $160 million by 2018. On a proforma basis, the combined entity generated approximately $2.5 billion in revenues in 2015. In 2015, Mitel reported revenues of $1.16 billion and an operating loss of $10.2 million, while Polycom reported total revenue of $1.27 billion and an operating profit of $86.1 million.

Both Mitel and Polycom currently carry a Zacks Rank #3 (Hold).

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POLYCOM INC (PLCM): Free Stock Analysis Report
 
MITEL NETWORKS (MITL): Free Stock Analysis Report
 
CISCO SYSTEMS (CSCO): Free Stock Analysis Report
 
MICROSOFT CORP (MSFT): Free Stock Analysis Report
 
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Zacks Investment Research