* Mitel and Inter-Tel: A force to be reckoned with in SMB IP telephony and beyond?
Mitel Networks and Inter-Tel last week announced the completion of their merger, making Inter-Tel a wholly-owned subsidiary of Mitel. Mitel paid an estimated $723 million for the voice-data convergence equipment maker, as disclosed when the deal was announced in April 2007. Annual 2006 sales for Mitel totaled $387 million while Inter-Tel’s sales came in at about $458 million for the same period. Both companies supply IP telephony systems, they are especially strong in the small and midsize business market, and they have been moving “up-market” to supply systems to larger enterprise customers.
In a prepared statement, Don Smith, CEO of Mitel said: “Inter-Tel’s people, products, managed services and partnerships complement those at Mitel and will enable us to accelerate our growth strategy by extending our [SMB] leadership position and continuing our expansion into the large business sector.” In the same statement, the company laid claim that it will now be the IP telephony market share leader in the North American SMB market and in the U.K. communications market, and it will become the No. 2 provider in the Western European market based on market share. Mitel will continue to maintain Inter-Tel’s Arizona headquarters as both the operations center for the combined U.S. business and as a center for research and development.
Our analysis: Both companies have enjoyed success in the crowded SMB market, and we believe the merger will help the combined entity to be an increasingly effective SMB competitor. But we remain unconvinced that even a company with $800 million in annual sales will dislodge Cisco, Nortel and Avaya from their large enterprise market positions. We also note that the competition for IP telephony system sales into the SMB market is becoming increasingly competitive, evidenced both by SMB-centric product announcements across the industry and by the legal wrangling between competitors. For example, Mitel and ShoreTel recently filed patent infringements lawsuits against each other in U.S. Federal District Court, making claims and counter-claims. But the bottom line? While merger synergies always take time to show results, we believe that customers from both companies will benefit because the combined entity will have a broader portfolio, increased sales channel support, and a larger R&D staff.
