After Mitel Acquisition Of Polycom For $1.8 Billion, What's In Store For Partners?

In what for some is a surprising outcome, unified communications vendor Mitel Networks said Friday that it will acquire videoconferencing vendor Polycom for $1.8 billion.

While a merger between the two companies has reportedly been in the works since October 2015, Elliott Management, which owns a 6.6 percent stake in Polycom and a 9.7 percent stake in Mitel, originally suggested that San Jose, Calif.-based Polycom acquire Mitel. Earlier this month, however, Bloomberg reported that Mitel was in talks to acquire Polycom for $1.7 billion.

"I did not expect this," said a Polycom partner who requested not to be identified. "This seems to be about whose bank has the biggest pockets, but I'm not sure that it matters who buys who -- they are swapping money or shares back and forth."

[Related: Mitel, Polycom Merger Talks 'Heating Up'; Shares Soar]

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While the Polycom brand will be preserved, the combined company will operate under the Mitel name and will retain Mitel's headquarters in Ottawa, Canada. The new company will also include two Polycom directors on the Mitel board, the companies said.

Although the owner of the new company won't necessarily matter, questions remain for channel partners, said Gary Berzack, chief technology officer and chief operating officer of New York-based eTribeca, a Polycom partner.

"The synergies between the two companies have pretty much already been identified and agreed upon, and now, it just came down to corporate structure and financial distribution," he said.

Elliott Management in October offered its financial assistance to Polycom, suggesting that the videoconferencing vendor could pay between $1 billion and $1.2 billion for Mitel. Via the terms of the deal inked Friday, Polycom investors will receive $3.12 in cash and 1.31 Mitel shares for each share of Polycom they own. The deal values Polycom at $13.44 a share, based on Mitel’s closing price Thursday, and the acquisition was approved by the boards of both companies, Mitel and Polycom said.

"The question is how the channel is going to continue. Is Polycom's channel team going to continue to be independent from Mitel's channel when it comes to onboarding, maintenance and structure? Or, is it being absorbed, and we'll all have to refresh our Polycom relationship?" asked the solution provider who requested anonymity.

Mitel's focus on telephony offerings and cloud-based solutions focused mainly on small and midsize companies have earned the provider a slightly different partner base than Polycom's channel, said Jim Kruger, chief marketing officer for Polycom.

Polycom sells telephony endpoints through distributor partners. Its portfolio of video solutions is generally sold through systems integrator partners to mostly enterprise customers.

"There is definitely room for some [cross-pollination] there," Kruger said. While some of Polycom's partners are used to selling telephony, others may choose not to join the Mitel channel program because Polycom partners will most likely have to become certified in any telephony products that the new company could create, he said.

"It is an opportunity for those partners to pick up another product line, and for them to move forward with stronger cloud offerings both on the video and voice side," he said.

As the newly merged companies iron out their architecture and technology plans over the next few months, partners may be stuck in a holding pattern for the time being, the solution provider who wished to be anonymous said.

Mitel's acquisition of Polycom implies that the new company will be leading with voice instead of video, Berzack said. The combination of the two companies could help create a new, formidable contender against the likes of Microsoft and Cisco, which are dominating the unified communications space.

"Huge swaths of companies are deploying Microsoft's Skype for Business and are using the HD video capability on that platform, and Office 365 now has PBX functionality, so the definition for what a voice and video play is in 2016 will be upended in the next few years as the major vendors start to blend together," Berzack said.

Without market consolidation between players offering voice and video -- a market that been oversaturated and largely flat as more business customers race to the cloud -- standalone vendors wouldn't be able to make an impact on the market going forward or be able to compete against the market heavyweights, he said.

The merger will allow Polycom partners to sell video solutions in conjunction with Mitel's cloud platform, said Ashan Willy, senior vice president of product management and worldwide systems engineering for Polycom.

"The partners we've spoken to see this as a greater opportunity to get into the cloud, and to expand the product offerings … because now we are twice as big," Willy said.

The acquisition is subject to shareholder and regulatory approval, and is expected to close in the third quarter of 2016.