ShoreTel Acquires Hosted UC Player M5 Networks

In a move that dramatically expands what it can offer for hosted VoIP and UC options, ShoreTel on Wednesday confirmed it will acquire M5 Networks, a New York-based hosted UC vendor, in a deal worth about $146 million.

Under the terms of the deal, M5 shareholders will receive about $84 million in cash and 9.5 million shares of ShoreTel stock, equating to $146.3 million in initial consideration. M5 shareholders are eligible to receive contingent consideration of up to $13.7 million payable over two years, provided certain revenue performance milestones are achieved in 2012.

Peter Blackmore, ShoreTel's CEO, said the acquisition gives ShoreTel a prime position in the fast-growing market for cloud-based UC.

"This acquisition is a critical step in our evolution and enables the company to capitalize on trends in cloud computing and advance our enterprise communications strategy," Blackmore said in a statement.

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In an interview with CRN at ShoreTel's Champion Partner Conference in Chicago last summer, Blackmore said ShoreTel was taking a wait-and-see approach to hosted UC.

"I'm not sure how much hosted you'll see," he said at the time. "I don't know. Nobody does. I don't have a crystal ball, but keep your eye on that one."

The M5 acquisition wouldn't be ShoreTel's first foray into cloud-based unified communications; ShoreTel had previously promoted the hosted model to partners at its 2010 partner conference. But it received barely a mention at the 2011 conference, with Kevin Gavin, ShoreTel's chief marketing officer, telling analysts that hosted UC was "not a real competitive threat."

VARs told CRN at the time that ShoreTel had a number of technical problems with its initial rollout of hosted solutions to partners, and had likely pulled back on discussing it last year to further test the waters.

Under the terms of the acquisition, M5 will be operated as a ShoreTel business unit and will continue to be led by M5 CEO Dan Hoffman. ShoreTel said it plans to keep the engineering teams separate, but will include M5's hosted solutions as part of ShoreTel's Champion Partner program, with details to follow on how VARs will qualify.

"M5 is proud to be one of the leaders in the UC cloud market," Hoffman said in a statement Wednesday. "Joining forces with ShoreTel enables us to reach our ambitions of scale and cement our position in the hosted UC marketplace."

The acquisition could prove another game-changer for ShoreTel, which furthered its mobility ambitions a year and a half ago with an $11.4 million acquisition of Agito Networks. That move gave ShoreTel a play for extending an enterprise's existing PBX infrastructure out to mobile devices while reducing call costs and making mobile communications easier to manage.

M5, which was founded in 2000 in New York, is seen as a hosted VoIP pioneer, having stuck by the purely hosted model through its initial hype cycle and consequent cool-off during the past decade. M5 grew throughout the period, however, and as of last year did about $40 million in annual revenue supporting more than 1,800 customers worldwide.

One of M5's key moves was to depart from the model of using Broadsoft as a service delivery platform and launch its own, proprietary platform in 2010. Hoffman told CRN in June 2011 that acceptance of hosted VoIP solutions would continue to grow apace with cloud computing adoption.

"What happened in 2008 and 2009 was people froze," Hoffman told CRN. "They didn't do a lot. They knew the costs were low but IT departments had nobody and they just couldn't take on projects. Hosted VoIP just became an obvious answer."

A recent report by Gartner shows the IP voice-as-a-service market growing at a 36 percent compound annual growth rate in North America through 2015 to $2.2 billion.