ShoreTel to Acquire M5 Networks, Reports Q2 Revenue of $58 Million

It was a big day for IP phone system provider ShoreTel.

The Sunnyvale, Calif.-based company announced it will acquire M5 Networks (News - Alert) just before releasing its second quarter earnings report, which shows revenue of $58 million, up eight percent over Q1-2012 and up 22 percent from the second quarter of fiscal year 2011.

As cloud computing becomes a more popular option for enterprises, ShoreTel agreed to acquire hosted Unified Communications (News - Alert) provider M5 Networks for up to $162.4 million in cash and stock.

As a result of the acquisition, company officials said ShoreTel will be “uniquely positioned” to provide customers a choice between on-premise and hosted UC solutions.

“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,” Peter Blackmore, CEO of ShoreTel, said in a company statement. “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.”

Many will credit the simplicity of ShoreTel PBXs as well as their “networking”-based approach to design and deployment for some of their success, TMC (News - Alert) CEO Rich Tehrani recently said in a blog post.

“But the future is the cloud and M5 has been a regional player for a long time and although they have expanded their footprint they don’t have a strong enough brand to be the cloud-communications alternative to a strong brand like Cisco or Avaya (News - Alert). Now with ShoreTel behind them they have the money and the marketing expertise to be a serious player.”

And it’s ShoreTel’s gain for the obvious, as the company looks 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.

Under the terms of the 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 based on a ShoreTel’s average stock price over the prior 30 trading days. In addition, M5 shareholders could receive additional contingent consideration of up to $13.7 million.

Following the close of the acquisition, M5 will be operated as a ShoreTel business unit and will be led by M5 CEO Dan Hoffman (News - Alert). Company officials said they expect the deal to close by the end of March 2012.

M5 currently has a customer base of 2,000 companies with enterprise-grade communications on a subscription basis.

In its earnings report, ShoreTel reported a loss of $2.5 million, or five cents a share, compared with $3.7 million, or 8 cents a share, a year earlier, Dow Jones Newswires reported.

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