Publicly traded ShoreTel Inc. said Thursday that it would acquire M5 Networks in a deal valued at $146.3 million. The deal includes $84 million in cash, 9.5 million shares of ShoreTel stock and a potential $13.7 million in additional milestone payments. ShoreTel is a maker of IP phone systems.
PRESS RELEASE
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 Gartner[1], 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.
Webcast and Conference Call Information
ShoreTel will announce its financial results for the second quarter of fiscal year 2012 on a conference call and webcast at 1:30 p.m. PST (4:30 p.m. EST) today. To access the conference call, please dial +1-877-874-1565 for callers in the U.S. or Canada and +1-719-325-2313 for international callers and provide the operator with the conference identification number of 9984280. A live webcast will be available in the Investor Relations section of the Company’s corporate website at www.shoretel.com and an archived recording will be available beginning approximately two hours after the completion of the call until the Company’s announcement of its financial results for the next quarter. An audio telephonic replay of the conference call will also be available beginning at approximately 4:30 p.m. PST on Feb. 1, 2012, until 4:30 p.m. PST on Feb. 9, 2012, by dialing +1-888-203-1112 or +1-719-457-0820 for callers outside the U.S. and Canada and providing the conference identification number of 9984280.
Legal Notice Regarding Forward-Looking Statements
ShoreTel assumes no obligation to update the forward-looking statements included in this release. This release contains forward-looking statements within the meaning of the “safe harbor” provisions of the federal securities laws, including, without limitation, statements by Peter Blackmore relating to the expected benefits of the proposed acquisition, market potential and statements regarding the proposed operation of M5 after closing. The forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. The risks and uncertainties include our ability to integrate M5 Networks, our ability to retain M5 Networks’ customer base, potential unknown liabilities, security breaches or outages which may negatively affect our reputation, managing geographically-dispersed operations, increased risk of intellectual property litigation by entering into new markets, uncertainty as to ShoreTel’s ability to retain and motivate key personnel from the acquired company, increased competition by entering into new markets, the potential for litigation in our industry, and other risk factors set forth in ShoreTel’s Form 10-K for the year ended June 30, 2011, as updated by our Quarterly Reports on Form 10-Q on a quarterly basis.
About ShoreTel
ShoreTel, Inc. (NASDAQ: SHOR) is the provider of brilliantly simple Unified Communication (UC) solutions based on its award-winning IP business phone system. We offer organizations of all sizes integrated, voice, video, data, and mobile communications on an open, distributed IP architecture that helps significantly reduce the complexity and costs typically associated with other solutions. The feature-rich ShoreTel UC system offers the lowest total cost of ownership (TCO) and the highest customer satisfaction in the industry, in part because it is easy to deploy, manage, scale and use. Increasingly, companies around the world are finding a competitive edge by replacing business-as-usual with new thinking, and choosing ShoreTel to handle their integrated business communication. ShoreTel is based in Sunnyvale, California, and has regional offices in Austin, Texas; United Kingdom; Sydney, Australia; and Singapore.
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