As the dust begins to settle on Mitel’s Chapter 11 bankruptcy filing, many industry observers have reflected on the events that led to the filing.
While it first seemed like a shock, a closer look at Mitel’s financial journey reveals a massive debt load that has long hampered the enterprise communications stalwart.
As Zeus Kerravala, Principal Analyst of ZK Research, explained:
If you followed them through the acquisition through Searchlight and then Unify, they incurred a lot of debt, and they were shelling $130MN per quarter in just interest payments.
ShoreTel is another example of a costly acquisition.
Mitel acquired the business in 2017, thinking it had rolled up a solid UCaaS product. Yet, it has faced stability issues ever since.
That example highlights the difficulty Mitel has experienced in profiting from its pickups.
As such, the vendor has re-evaluated and focused on its strengths, like offering hybrid enterprise communications solutions.
While such a shift in strategy may be best, it requires resources, which Mitel couldn’t free up. Cue a Chapter 11 bankruptcy filing.
Mitel’s Financials: What Do We Know?
In 2023, Mitel closed its Unify acquisition, snapping up a UCaaS platform and collaboration services from the Atos Group.
The move significantly increased the company’s debt load, with court documents revealing a total debt of $1.3BN.
The burden was particularly acute, with interest payments alone consuming $130 million per quarter – a financial strain that left Mitel unable to pivot effectively.
The restructuring aims to eliminate $1.15 billion of this debt.
In doing so, Mitel plans to become much more agile, as the company claims to have long been hamstrung by its debts.
Indeed, its court documents note how those debts have contributed to Mitel’s slow speed in adjusting to market changes like its customers shifting to remote and then hybrid work after the pandemic.
A Restructure Signals a Change In Tact
Despite the bad press involved with the Chapter 11 bankruptcy, Kerravala told CX Today: “Part of their timing seems to be involved with seeing an opportunity to grab some of the Avaya base.
However, you need money for channel incentives, buybacks, and other such activities, and Mitel didn’t have the cash.
The restructure will free up resources to attack that Avaya base – which may be disillusioned now Avaya is prioritizing its top global 1,500 customers – and act on the opportunity of hybrid enterprise communications.
Indeed, with a massive on-premises user base still present in the mid-market, Mitel remains a prominent player, well-positioned to serve this demand.
However, Kerravala cautioned:
Obviously, bankruptcy news is going to cause nervousness, and the faster they come out, the better, but there is likely to be disruption in that window of time.
Navigating the Bankruptcy Process: Pace is Key
Mitel struck big partnerships with Genesys and Zoom weeks before entering bankruptcy, which may seem like a strange move.
Yet, it perhaps highlights how bankruptcy planning was long in the works.
As Kerravala noted: “If I had a lot of debt, I might go and take care of a few things first before I go into bankruptcy.”
Nevertheless, with the announcements happening in the space of weeks, Mitel indicates its intent for a swift process.
The company’s plan includes measures such as asset sales expected to raise approximately $135 million and securing $124.5 million in financing from debtor-in-possession (DIP) commitments and new exit financing.
These steps are critical for addressing the $235 million of debt that will mature by December 2025, a deadline that necessitates immediate action.
Mitel’s CEO Remains Positive
Mitel’s leadership remains optimistic about the future. Tarun Loomba, CEO of Mitel, expressed confidence in the company’s ability to emerge stronger post-restructuring.
In his statement, Loomba emphasized that the optimized capital structure would enable Mitel to support its customers with innovative solutions, particularly in hybrid communications, which he described as a “growing global preference”.
According to Loomba: “Our strengthened capabilities at the end of this process will ensure our ability to continue to support customers and partners with innovative solutions, incorporating emerging technologies, and meeting their evolving needs for secure, reliable communications solutions for years to come.”
We look forward to becoming an even stronger vendor to our customers through this process, better positioned to power their most meaningful connections and to address the increasing preferences for hybrid communications solutions globally.
While Mitel’s restructuring offers a pathway to stability, it has risks.
The uncertainty of the bankruptcy window is likely to cause nervousness among customers and partners.
Mitel’s bankruptcy marks a pivotal moment in its history — an opportunity to reset and realign for sustainable growth in a competitive market.
The company’s commitment to hybrid communications and innovative solutions offers hope for what lies ahead.
Yet, the enterprise communications market is becoming increasingly competitive, with the likes of AWS, Google, and Microsoft circling.
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