After an aborted IPO bid in 2006 and a continuing inability to climb back to profitability, VoIP-gear vendor Mitel Networks bears watching as the calendar flips to 2008.
With private-equity house Francisco Partners now said to own as much as 51 percent of the company, Mitel will be pressured to be sold or to somehow concoct a compelling story that would allow it to enjoy a reasonably good reception on the public markets. With tepid overall market conditions, and perhaps even a recession, on the cards for the first several months of 2008, an IPO for Mitel now seems improbable. Certainly no conceivable IPO would be worth anywhere near the $150 million that former majority shareholder Terence Matthews wanted.
Coming into Mitel as a result of the latter’s acquisition of Inter-Tel this past summer, Francisco Partners, like many private-equity players, is feeling the effects of deteriorating credit markets in the United States. Unlike Matthews, Francisco Partners is unlikely to take a long view toward its investment in Mitel. Time is money, especially when interest and debt charges are accruing.
So, the likely goal is to package Mitel as a takeover candidate for one of the leading players in the VoIP equipment market.
Cisco wouldn’t even think of biting. Mitel has far too much baggage to draw Cisco’s interest. Avaya has its own problems, and probably would remain on the sidelines.
Nortel is the obvious candidate, especially since Nortel and Mitel would be able to easily integrate their R&D teams in the Ottawa area. The Canadian government, which owns a minority stake in Mitel, might even look favorably upon such a combination, and perhaps provide some benefits that would make the deal easier for Nortel to sell to its investors. Since Nortel’s strengths are in sales to carriers and, to a lesser extent, enterprise markets, there might also be a measure of business logic in acquiring Mitel, which does relatively well selling its gear into small- and medium-size businesses. It also holds its own in many European markets, including the UK.
With winter making its presence felt up in Canada, perhaps the spring thaw also will see a warming in relations between Nortel and Mitel.