Mitel Network’s friendly acquisition of southern Ontario-based Aastra Technologies created a billion-dollar company with 60 million customers around the world, making it the city’s biggest tech deal this year.
by Alexia Naidoo
“(Mitel) started some 41 years ago as two entrepreneurs in a little strip mall in Kanata,” says Steve Spooner, Mitel’s chief financial officer. “To look at what the company is today with over $1.1 billion (US) in sales, over 3,000 employees, and being recognized as one of the top three or four players in the industry globally is something that as Ottawans we should all be very proud of.”
The two telecom equipment companies completed the cash-and-stock deal worth $392 million on Jan. 31. At the time, Mitel said the acquisition would position it to cash in on what it called an $18-billion business communications market that is preparing to upgrade to cloud-based services.
Mitel president and CEO Richard McBee says Aastra’s strong presence in the Western European market made it an ideal partner.
“This was part of a very definite strategy,” he says. “We had a very strong footprint in North America and in the U.K. and we were looking for candidates that would round out Europe for us.”
Mr. McBee says Europe lags behind North America in using cloud technology, offering a golden opportunity for Mitel to move into a market where Aastra already has a large legacy installed base.
“That installed base of legacy equipment is going to change to next-generation equipment at some time,” he says. “Being No. 1 in Europe, in all of EMEA (Europe, the Middle East and Africa), because of Aastra means we’re extremely well-positioned to take advantage of that when the market moves.”
In the shopping trip that led to the Aastra deal, Mitel looked for a company that was complementary from both geographical and cultural perspectives, offered an attractive combined solutions portfolio they could take to market, and had operating synergies that would help make the economics of the deal make sense for their shareholders.
“And with Aastra, we could tick all of those boxes,” says Mr. Spooner.
Mitel hired outside experts to do a cultural assessment of the top 200 people in both companies. “What came out of this evaluation, frankly, was they were amazed how aligned the cultures were,” says Mr. Spooner.
“M&A (mergers and acquisitions) is a little bit of science and a lot of art,” says Mr. McBee. “The art is making sure that the cultures are compatible, that the leaderships are compatible, and that people are ready for the merger or acquisition. You’re constantly cultivating that until you get to a point where you both feel really good about it and then the train starts moving pretty fast.”
Keeping the merger on track involved establishing clear accountability so “people know who’s on first,” says Mr. Spooner, “because we have to drive the business day to day while we’re integrating it.”
Mr. Spooner said communicating with channel partners and customers was also key to allaying any concerns about the plans for the portfolio.
“We run a very disciplined IMO (Integrated Management Office),” says Mr. McBee. “We do a lot of pre-planning, even before the deal closes. The idea is to make sure that we’re planning the work and that we’re communicating very well so there’s as little surprise as possible.”
Was the merger a profitable decision?
“Absolutely,” says Mr. Spooner. “There’s an opportunity to eliminate duplicate spending, duplicate cost, and to drive attractive synergies through areas such as the supply chain.
“We estimated that we could likely find $50 million of annualized cost synergies in the business once we had integrated the two businesses. And within three months, we increased that estimate to $75 million.”
Mr. McBee adds another benefit: “We’re getting invited to tenders that we would have never been invited to before. We’re competing with some big boys out there, like Cisco and Avaya, so to actually be No. 1 in one of the major markets is really good.
“We’ve made it back into the Leader quadrant which, for me, I couldn’t be more proud of our team who has made that happen. To be in (industry research and analysis firm) Gartner’s Unified Communications Leader quadrant, that shows the powerhouse that we’ve created on a global basis.”
And Mitel is clearly not done growing yet.
“We’ve got really good momentum right now. As I tell our team, ‘We sprinted the first lap, now let’s pick up the pace,’” Mr. McBee says with a laugh.
The company is keen on pursuing more M&A deals in upcoming laps – something its new billion-dollar-plus scale can facilitate.
“We have a strong mandate from our board and a good track record on delivering on successful acquisitions,” says Mr. Spooner. “A lot of companies are looking to Mitel and saying, ‘Hey, look at me. We think we’d do better having the might of a billion-dollar Mitel behind us.’ So that means more opportunities for Mitel to continue to be a consolidator.”
$272.4 million - Mitel’s revenues in the third quarter ended Sept. 30, eight months after it bought Aastra.
$135 million - Mitel’s revenues in the third quarter a year earlier, before it acquired Aastra.
$569.5 million - Mitel’s total revenues for the year ended Dec. 31, 2013. Aastra was at $588.9 million.