ShoreTel Inc. (NASDAQ: SHOR), the leading provider of brilliantly simple IP phone systems with fully integrated unified communications (UC), today announced it has signed a definitive agreement to acquire M5 Networks (“M5”), a recognized leader in hosted Unified Communications. As a result of the acquisition, ShoreTel will be uniquely positioned to provide customers a choice between on-premise and hosted UC solutions.
Under the terms of the definitive agreement, M5 shareholders will receive approximately $84 million in cash and 9.5 million shares of ShoreTel stock, which equates to a total of $146.3 million in initial consideration based on a ShoreTel’s average stock price over the prior 30 trading days. In addition, M5 shareholders may receive additional contingent consideration of up to $13.7 million. The contingent payments are payable over the two years after closing and are based upon the achievement of certain revenue performance milestones for the year ended Dec. 31, 2012.
The acquisition of privately held M5 enables ShoreTel to expand its solutions into the cloud and reach a large and growing market segment of customers that are looking to deploy IP communications through a hosted model. Industry trends such as cloud computing, virtualization, data center economics and the flexibility of services-based models are driving the Unified Communications as a Service (UCaaS) market, which provides businesses another way to bring unified communications to their workforce.
“The acquisition of M5 positions ShoreTel as a leader in the fast-growing cloud UC market and delivers a suite of hosted telephony solutions that is unmatched in the marketplace,” said Peter Blackmore, CEO of ShoreTel. “This acquisition is a critical step in our evolution and enables the company to capitalize on trends in cloud computing and advance our enterprise communications strategy.”
M5 pioneered hosted UC in 2000 and today provides more than 2,000 companies with enterprise-grade communications on a subscription basis. This acquisition positions ShoreTel to be a leading provider in the emerging UCaaS market, enabling it to extend its technology and industry-leading customer satisfaction that are the hallmarks of its value proposition into the cloud through a hosted offering.
According to a report by Gartner1, the IP Voice as a Service market is expected to show a 36 percent compounded annual growth rate in North America through 2015 to $2.2 billion. With this acquisition, M5 brings the specialized knowledge, infrastructure and skills to give ShoreTel rapid entry into the hosted UC market while maintaining its focus on growing its traditional premise-based UC business.
Combined Value Of ShoreTel And M5
ShoreTel is acquiring M5’s entire operation including its customer base, distribution capability, and proprietary network, and will be extending offers to substantially all of its employees.
- Following the close of the acquisition, M5 will be operated as a ShoreTel business unit and will be led by M5 CEO Dan Hoffman, who shares ShoreTel’s brilliantly simple approach to unified communications, and an intense focus on customer satisfaction. Hoffman will become president and general manager of the new business unit.
- While the engineering teams will remain separate they will cooperate and coordinate in order to leverage the innovation and best practices of both groups so that both product roadmaps will benefit from the combined capabilities.
- The current ShoreTel Champion Partner reseller program will evolve to include the ability to offer hosted services once the reseller has been qualified and certified.
“M5 is proud to be one of the leaders in the UC cloud market. We have achieved this position with a very strong management team and an excellent product offering that is the simplest in the industry,” said Dan Hoffman, CEO of M5 Networks. “Joining forces with ShoreTel enables us to reach our ambitions of scale and cement our position in the hosted UC marketplace.”
The transaction is subject to customary closing conditions, and is expected to close by the end of March 2012. Arbor Advisors acted as financial advisor to M5 Networks, and Bank of America Merrill Lynch acted as financial advisor to ShoreTel.