This syndicated post originally appeared at No Jitter - Recent posts by Zeus Kerravala.

Mitel has been an innovator and forward-thinker; Aastra’s specialty was acquiring companies that had seen better days.

In the communications world, Monday could have been boring, with many North American companies taking today off to remember our War Veterans and the ones who gave their lives so we could have the freedom to do what we wanted–Veteran’s Day in the U.S. or Remembrance Day to all of my Canadian friends and family. However, the day did start with a bit of news as Kanata, Ontario-based Mitel acquired fellow Canadian company, Aastra for a cool $374 million, which is about an 18% premium based on where the stock was prior to the acquisition. Eric Krapf, as he usually does, gave us a great summary of news so I won’t go into the specifics since he’s covered that already.

On paper, this acquisition certainly makes sense, as the market is dominated by companies much larger than either Mitel or Aastra. Take Cisco and Microsoft out of the mix and there’s still Avaya, Alcatel-Lucent, Unify (formerly Siemens Enterprise), NEC, and the list goes on and on. The combination of Mitel and Aastra creates a much bigger company that’s financially stronger and able to go toe to toe with some of the bigger boys.

I’ll also give a tip of the cap (or the toque since the company is Canadian) to Mitel CEO Rich McBee for doing something bold in an industry that’s been quiet over the past few years. Granted, Unify is trying to punch up the industry with the concept of “Energizing the Workforce”, but there really hasn’t been that much corporate-level activity in the UC industry. This acquisition follows one earlier this year where Mitel purchased PrarieFyre to bolster its position in the call center space, an emerging opportunity with mid-market companies.

Again, the acquisition makes sense on paper–complementary markets, a little product overlap but nothing that can’t be managed, and it brings some much-needed consolidation into a market where we seem to have far too much supply compared to the demand. However, I’ve always felt that culture plays a big role in whether acquisitions work or not, and here is where my concerns lie.

Mitel has been one of the more innovative companies in the UC space for well over 10 years now. The company was the first UC vendor to truly embrace the software model; it has had some very cool products such as the Navigator bar, VPN phone and the iPaq phone. Mitel along with Siemens were the two vendors to strongly support Microsoft’s play in UC–that turned out to be a bit of fool’s gold, but the thought process by Mitel was correct–Microsoft was going to have a big impact on UC, and partnering with them and riding that wave made sense and was worth a shot.

Mitel was also the first UC vendor to embrace the power, agility and flexibility of virtualization. I remember seeing Mitel at VMWorld four or five years ago, long before other UC vendors started showing up at the industry’s largest virtualization show. Most recently, Mitel has been amongst the most aggressive vendors with respect to cloud services and has had some success of late building a subscriber base with their UCaaS offering. One could argue the level of execution for Mitel has been spotty, but what can’t be argued is the innovative approach the company has taken to UC.

Aastra, on the other hand, has been anything but innovative. The company thrives on acquiring distressed assets, cleaning up the management teams, fixing operational issues and turning the business into gold. Aastra’s portfolio of companies is a veritable who’s who of telecom of days gone by, including Ericsson’s enterprise and cable businesses, Intecom/EADS, Nortel’s access and digital video divisions, and ASCOM. These were all companies that at one time had strong businesses and had lost their way. Aastra’s play is to acquire them for a song, spend some time cleaning it up and then find a way to squeeze money out of it. I’m certainly not trying to downplay what Aastra does, as there’s a certain art to being able to do that, and certainly not everyone can do it.

As a publicly-traded company, the main goal of a business is to return shareholder value, and there are many ways to do that. While Aastra’s stock price has bounced around over the past several years, the share price has doubled over the past year. If you map out Mitel, the stock follows a very similar trajectory, so both companies have shown better execution recently by following the paths that make their companies unique. My question is whether two companies that approach the market from such different angles can thrive together, or will culture clash wind up holding the combined company back?

Only time will tell, but it’s imperative that the “new Mitel” find its mission and stick to it and not try and walk the two independent lines that the former companies did in the past.

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Zeus Kerravala

Zeus Kerravala is the founder and principal analyst with ZK Research. Kerravala provides a mix of tactical advice to help his clients in the current business climate and long term strategic advice.
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