Mitel Networks Corp. has agreed to sell its mobile business for more than $350 million, so it can focus on unified communications as a service and other growing segments of the UC and collaboration market.
Mitel announced this week it would sell its carrier-focused business to Xura Inc., a developer of communications software based in Wakefield, Mass. Mitel agreed to accept $350 million in cash, a $35 million noninterest-bearing promissory note, and an equity investment in Sierra Private Investments L.P., a limited partnership that will own Xura and the mobile division. Mitel expects to close the deal in the first quarter of 2017.
Mitel plans to use the money to grow the Mitel UCaaS business. The market for cloud-based communications is rising quickly. India-based Transparency Market Research predicted global revenue from UCaaS will increase more than $29% annually to $79 billion by 2024.
Mobile sale follows failed Mavenir buy
Mitel is selling its mobile operations a year after it paid $560 million for Mavenir Systems, a specialist in software-based networking for carriers. At the time, Mitel said Mavenir would provide the technology needed to help carriers deliver mobile UC and collaboration (UCC) services through voice over Wi-Fi and high-speed cellular networks.
"Obviously, that didn't work out," said Irwin Lazar, an analyst at Nemertes Research, based in Mokena, Ill.
Getting UCC applications to work smoothly on a mobile phone is a "tough nut to crack," Lazar said. That's because people have to stay within the UC application to take advantage of all its features.
"People generally don't want to use UC apps on their mobile phones," Lazar said. "They prefer to use the native dialer and messaging apps."
Acquisition possible to grow Mitel UCaaS operations
Now that Mitel is zeroing in on the UCC market, the company could jump-start growth in the Mitel UCaaS business by acquiring a cloud-based UC provider, such as 8x8 Inc., RingCentral Inc. or Vonage, Lazar said. "In the small and medium-sized business market, we find that the UC space is very competitive, so there is an opportunity for Mitel to grow through acquisition."
Over the last couple of years, Mitel hasn't had much luck with buying companies. In 2014, Mitel failed to acquire ShoreTel, a UC vendor with an advanced UCaaS product, for $574 million.
In July 2016, private equity firm Siris Capital Group outbid Mitel for video conferencing company Polycom. Siris paid $2 billion in cash, a premium of almost 14% over Mitel's offer.
How to know when UCaaS is right for you
Cutting through the hype of cloud-based UC
Choosing between hosted UC or a managed service provider