Mitel will buy Polycom for $2 billion in a tough enterprise communications market

The Ottawa-based maker of corporate voice systems has agreed to pay $1.96 billion for Polycom in a deal it says would form the biggest conference phone and business cloud communications company in the world. The deal, announced Friday, still needs shareholder approval but is expected to close in the third quarter.

The combined company would be led by Mitel CEO Richard McBee under the Mitel name, but it would maintain Polycom’s brand. With about 7,700 employees across five continents, it would bring in annual revenue of $2.5 billion, the companies said. Economies of scale and steps like consolidating facilities would cut costs.

Workers used to rely heavily on desk phones and needed specialized enterprise platforms to participate in videoconferences. Now they increasingly use mobile phones and cloud-based video services that help them stay in touch both in and out of the office.

That’s putting the squeeze on everyone selling professional communication tools and driving down prices, said Wainhouse Research analyst Ira Weinstein. For example, there are now hundreds of videoconferencing service options where companies once had just a few dedicated platforms to choose from.

Though more portable and less expensive options abound, traditional systems are still in demand for their quality, reliability, security, and integration with enterprise directories, Weinstein said.

Friday’s deal could combine the strengths of two vendors hit by this trend, but it might also blunt their effectiveness, he said.

Mitel has a full software stack for unified communications, the combination of voice, video, and messaging some enterprises use to keep their employees and customers connected. That will complement Polycom’s popular desk phones and video systems, he said.

But there are also hazards in the acquisition, he said. Polycom’s hardware works with telephony software from Shoretel, 8x8, and other third parties that compete with Mitel. If Polycom became part of Mitel, it would put those companies in the position of recommending a competitor’s phones to enterprises building phone systems.

The acquisition might also weaken Polycom’s close partnership with Microsoft, also a Mitel rival, Weinstein said.