Mitel has officially exited Chapter 11 Bankruptcy.
Having received court approval for its pre-packaged restructuring plan back in April, the move will eliminate around $1.15BN of its $1.3BN debt.
In addition, the vendor will now be able to access $64.5MN in financing to help support its continued operations.
The news marks the end of Mitel’s three-and-a-half-month bankruptcy stint and the fulfillment of its promise of a “swift” exit.
Tarun Loomba, CEO of Mitel, described the news as a “fresh start” for the company.
“With the weight of legacy debt lifted, we are focused on accelerating our hybrid communications leadership,” he said.
We appreciate the continued trust of our employees, customers, partners, and vendors throughout this process and look forward to continuing to lead the way in unified hybrid communications for years to come.
Under the terms of Chapter 11 Bankruptcy, the company was able to continue operating while it devised an agreeable restructuring plan.
Now that it has officially exited Chapter 11, what will Mitel’s next move be?
A Fresh Start or a Short Reprieve?
Being able to write off such a large amount of debt and return from bankruptcy is undoubtedly good news for Mitel.
Indeed, according to Zeus Kerravala, Principal Analyst of ZK Research, at one point, the company was shelling out”$130MN per quarter in just interest payments.”
Following the restructuring, the company is clearly in a far stronger financial position, allowing it to invest more resources in innovations, expand its capabilities, and support businesses leveraging cloud and on-premise hybrid communications environments.
This was touched on back in April by Loomba, who said:
With a more efficient capital structure in place, we’re well-positioned to accelerate growth and sharpen our focus on delivering flexible, secure, and mission-critical communications solutions.
However, despite the opportunities that this fresh start can potentially deliver, recent history suggests that it might be a bumpy road to recovery.
An obvious comparison to make is with Avaya.
Both companies are legacy unified communications and contact center providers, entering and exiting Chapter 11 Bankruptcy.
While it is impossible to directly compare any two companies, Avaya also emerged from Chapter 11 with significantly less debt and a firmer financial foundation.
Since then, the company has released a slew of fresh innovations, such as the recent launch of its Avaya Infinity platform, but has also had to make some difficult decisions.
Most notably, the vendor has implemented a series of major staff cuts, including three percent of its workforce in July of last year, and additional layoffs that have left some regions threadbare.
Avaya’s struggles serve as a warning to Mitel about the difficulties that come with navigating a bankruptcy exit.
This was touched upon by Tim Banting, Head of Research and Business Intelligence at Techtelligence, who explained how large enterprises that deploy Avaya and/or Mitel solutions are under pressure to modernize.
While Avaya and Mitel focus on hybrid models, competitors like Microsoft, Zoom, and RingCentral offer fierce competition.
“Both companies’ innovation strategies are focused on vendor survival, not innovation for clients and prospects. Innovation should be focused on the rear-view mirror!” Banting argued.
Neither vendor is likely to win net-new logos unless they significantly change course or get acquired.
Moreover, while both companies are in a stronger financial position than they were pre-bankruptcy, they are still cash-constrained compared to hyperscalers.
This means that they are dependent on installed base monetization via maintenance, licenses, and slow hybrid upgrades.
For Banting, this will not be enough for the vendors to effectively compete in the space. He said:
Mitel and Avaya are likely to face a slow decline unless they can change direction or get acquired. Both companies are struggling with structural issues, a lack of innovation, and a shrinking market.
“Although they have some valuable assets, these will become more of a liability if they don’t come up with solid plans to transform their businesses.”
The next few months and years will be crucial for the future of Mitel.
The restructuring of debt has given the company the opportunity to make moves that previously would have been impossible, but there is still huge pressure on the vendor to make the right moves that will allow it to fully take advantage of this fresh start.
Its hybrid strategy, alongside recent partnerships with Genesys and Zoom, may offer hope. Yet, execution will be everything.
