Three months ago, after 10 months of negotiations, Canadian tech giant Mitel Networks Corp. announced that it would buy video conferencing solutions provider Polycom Inc. for close to $1.9 billion. Now, it appears that Polycom has had a huge change of heart.
Today, private equity firm Siris Capital Group LLC said it has agreed to acquire Polycom for $2 billion in cash and take the company private. Previously, the plan was to consolidate the enterprise communications businesses of Mitel and Polycom.
The new and improved deal depends on Polycom cancelling its deal with Mitel, which Siris and Polycom said has already been done. Taking into account Polycom's outstanding debt, Siris' offer was 14 percent higher Mitel's bid, based on Mitel's closing share price as of July 7, according to a statement released by Polycom.
"Polycom has informed Siris that its Board of Directors has unanimously determined Siris' offer to constitute a 'Company Superior Proposal' under the terms of its merger agreement with Mitel," according to the statement. "Polycom has also announced its intention to terminate promptly its merger agreement with Mitel, subject to the terms thereof." Polycom's market cap as of this morning is around $1.47 billion.
A Better Offer, More Independence
Polycom initially received an offer from Siris about a month after it announced the Mitel merger. At that time, Mitel expressed confidence that the Siris proposal would not lead to a superior offer. According to a May regulatory filing, Polycom's board rejected the offer and declined to engage further. But then, the tables turned in Siris' favor.
One aspect of Siris' offer that Polycom might have found appealing is that it will keep the video and voice conferencing company as an independent operation. There could also be added opportunity for Polycom as part of the portfolio of other telecom interests owned by Siris.
A few other companies currently in Siris' portfolio include Digital River, collaboration software vendor PGi, and digital communications group Xura, which it bought two months ago. Polycom stockholders also presumably liked the idea of an all-cash transaction.
What remains to be seen is how long Polycom will remain under Siris' ownership. Private equity firms tend to buy, improve and sell communications assets quickly. It is possible that Siris will hang on to Polycom for a while, considering that it does have leadership with expertise in Polycom's business, including executive partner Mary McDowell, who once led Nokia's feature phones division.
The Players and Trend To Consolidate
Founded in the early 1970s, Mitel was one of the companies to help jumpstart the growth of Canada’s technology industry. Under founder and chairman Terry Matthews, Mitel applied software and microprocessor technology to telecommunications, later expanding into semiconductors and business communications.
Polycom was founded in 1990, based in San Jose, California, and reports more than 400,000 companies and institutions worldwide now use its voice and video collaboration solutions. The company's communications products are used for customer service, remote meetings, education, and government services.
The combination of Mitel and Polycom would have created a leading ICT company in the enterprise communications market, with some 7,700 employees worldwide.
While the Mitel/Polycom acquisition failed to proceed, the enterprise IT market has seen a number of similar consolidations recently.
For example, In January, Cisco bought enterprise collaboration startup Acano for $700 million, IBM purchased enterprise conferencing companies Ustream and Clearleap; and in April 2015, Atlassian acquired BlueJimp.
Some of these deals have been spurred by the increasing prevalence of new services, such as Slack and Microsoft-owned Skype, that provide enterprise communications capabilities without expensive hardware.