Mitel soars after $2B acquisition by U.S. company

OTTAWA Mitel Network Corp. will be taking its business private as it prepares for decisions that are sure to cause short-term pain, but should, ultimately, lead to longterm gains, according to the firm’s chief executive officer.

Richard McBee, who has been CEO at Mitel since 2011, said Tuesday that with customers moving away from large purchases of telephone equipment, the time is ripe to pursue new business opportunities. Mitel makes telephone and communications systems for small and medium-sized businesses.

Today’s customers want subscription-based services they can pay for monthly. That allows businesses to avoid allocating a large amount of cash toward the purchase of a phone system that will quickly become obsolete and need costly maintenance or upgrades.

“Our on-site business generates a lot of cash; it’s a main source of profitability for us, but it is a declining business,” he said. “With our cloud business, it’s a great business. It’s a recurring revenue business.”

As a result, the Kanata, Ont.based company has agreed to be acquired by a U.S. investment firm in a $2-billion cash deal designed to take it private. The deal, announced early Tuesday, will see Mitel shareholders receive $11.15 per share, which puts the firm’s market capitalization at $1.35 billion. The U.S. investor, Searchlight Capital Partners, L.P., will also assume all of Mitel’s corporate debt.

Subscription-based services allow a business to have the phone systems they need by connecting to them through the internet. Mitel phone systems provide whatever the subscriber needs from a centralized location. Subscribers pay a monthly fee, typically a fraction of what a permanent on-site installed system would cost to Mitel.

It’s a business model that is affecting change in numerous sectors, most notably for internet based websites and stores. Amazon Web Services has become a giant in the provision of centralized web hosting technology that powers millions of sites including those of banks, stores and sports teams. Similarly, Ottawa’s Shopify provides online retail systems, provided a customers pays their monthly subscription fee.

The news of the purchase, expected to close in the second half of 2018, sent Mitel’s shares up by as much as 14 per cent in pre-market trading Tuesday. Its shares closed at $14.29, up 9.6 per cent in Toronto.