**Editor’s Note: Please click here for a recap of the biggest channel-impacting mergers in July-August 2015.**
A major stakeholder has urged two unified communications and collaboration (UCC) giants to merge with each other.
“We believe that Polycom is an excellent platform vehicle to roll up the UCC space: With significant cash flow, net cash and a capable management team and board, Polycom can become an accretive M&A machine,” the letter said. “Further, we believe the space is ripe for consolidation – small competitors with low valuations and duplicative cost structures create the opportunity.”
Elliot said it has invested approximately $100 million in each company, in addition to owning stock for unified communications provider ShoreTel.
“We have owned Mitel for years, but acquired almost all of our new position this year based on the same thesis – that we believe Mitel is a good platform vehicle to roll up the sector and is also an attractive merger candidate for Polycom,” the letter said.
The letter addressed Polycom’s 2012 projection that it would grow 15 percent per year. The actual result has been a decline, the letter said.
“While Company performance has been poor, we think Polycom’s CEO Peter Leav and his executive team are quite capable, and this decline demonstrates just how challenging Polycom’s end-markets are and how necessary it is for the Company to take bold action,” the letter said.
Feedback to Elliot’s proposition has been mixed.
TalkingPointz analyst Dave Michels wrote in a blog that although consolidation in the UCC industry is inevitable, “the term generally applies to competitors or complementary vendors. Polycom and Mitel are neither.”
Instead, Michels said a relationship with Microsoft might be more “synergistic,” as evidenced by Polycom’s success in Microsoft telephone handsets. He also cited Mitel’s partnership with Vidyo for video as something that would be harmed by …
… a Polycom merger.
“Industry consolidation will continue, but as I said, this particular combination is questionable beyond some short-term financial gains,” Michels said. “Mitel needs more acquisitions that complement its momentum in next-generation wireless and cloud solutions. Both premises-based UC and video solutions are mature markets.”
Vince Bradley, CEO of master agent WTG, told Channel Partners that Elliot’s letter makes correct assertions, and he said Mitel isn’t a bad choice for a merger. He said Mitel’s growing engagement with the services side of the channel makes it an attractive pick.
“Because frankly, I have been surprised that Polycom hasn’t already tapped our space,” he said.
Bradley said Polycom would have an interesting choice of whether to simply make adjustments, go on an M&A spree or execute a mix of both. Although he said he would need more details to make a definitive pronouncement, he said he might consider making adjustments first before potentially making an M&A run in the second half of 2016.
“I think Elliot is pretty spot-on with a lot of this, and I think that [Polycom has] got to do something now; doing nothing is a huge mistake,” he said.