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 it private. Previously, the plan was to consolidate the enterprise communications businesses of Mitel and Polycom.
The 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
Polycom received the offer from Siris about a month after it announced the Mitel merger. At that time Mitel expressed confidence that the Siris proposal wouldn’t lead to a superior offer. At that time, Polycom’s board rejected Mitel’s offer and declined to engage further, according to a May regulatory filing.
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.
The enterprise IT market has seen a number of consolidations and attempted consolidations recently. For example, Cisco bought enterprise collaboration startup Acano for $700 million, Atlassian acquired BlueJimp and IBM purchased enterprise conferencing companies Ustream and Clearleap. Some of these deals have been spurred by the increasing prevalence of smaller, newer services, such as Slack and Microsoft-owned Skype, that provide enterprise communications capabilities without expensive hardware.
Independence Is Key
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, despite what could happen to that operation as part of a portfolio of other telecoms 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 remains under Siris’ ownership. Private equity firms tend to buy, improve and sell communications assets quickly. It’s possible that Siris will hang on to Polycom for a while, considering that it does have leadership with expertise in Polycom’s business, such as executive partner Mary McDowell, who once headed up Nokia’s feature phones division.
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