Oh Me, Oh Mitel – A Critical Analysis of Mitel’s Recent Bankruptcy

Preliminary Comment

At Recon Research, we always call ‘em like we see ‘em. We are equal opportunity critics, and always have been. Sometimes that means we say the things that others want to but can’t (or choose not to) say. So be it.

Truth be told, we’re Mitel fans for several reasons, including:

• Its products work well.
• Its customers rarely complain.
• When we have questions, the company answers them quickly and directly.

With that in mind, let’s dig into Mitel’s recent bankruptcy filing.

It Is Your Right, But Is It Right?

Yes – bankruptcy is legal. In the United States, companies typically (but not always) have the right to declare bankruptcy (meaning file for bankruptcy protection) while they reorganize.

Yes – bankruptcy is helpful. Filing for bankruptcy protection gives companies the opportunity to reorganize, recapitalize, and recover from debt or other issues impacting their ability to operate and/or generate profit.

Yes – bankruptcy makes sense. Sometimes great companies that add value and serve a purpose face challenges they can’t handle without help. Economic downturns. Market changes. Supply chain disruptions. Etc. The bankruptcy process lets these organizations shore up their fundamentals and continue supporting customers.

Yes – sometimes filing for bankruptcy protection just feels wrong. To a point, that’s the situation here.

On-Prem is NOT the Problem

Before we move forward, I want to make one thing CRYSTAL CLEAR – Mitel’s problem is NOT that it offers on-premises / self-hosted solutions.

On-premises (self-hosted) solutions make perfect sense for organizations needing strong security, data sovereignty, control, scalability, and more.

There is and will continue to be a solid market opportunity for on-premises / self-hosted solutions. Enough said.

The Pond is Shrinking … but That’s OK

Despite Mitel’s (and Avaya’s and others’) best efforts, the pond of on-premises telephony is shrinking for many reasons, including:

• Customer migrations to hybrid and cloud telephony
• Competition from desktop and room-based video conferencing
• Convenience and accessibility of mobile phones

However, even with this seemingly unavoidable customer (user, desk, line, etc.) erosion, there are still more than enough ways Mitel can add value and even increase its revenue per user with its on-premises offerings.

So – What is the Problem?

In a word, the problem is that Mitel primarily offers on-premises / self-hosted solutions … but doesn’t act like it.

It’s just that simple.

Hunker Down and Find the Next Opportunity

For years, Mitel has had a high (leading) market share in a mature, slow (or even negative) growth market segment. So, what should Mitel have done?

• Focus on Customer Retention
• Watch the Bottom Line
• Search for Greener Pastures

Focus on Customer Retention

I would give Mitel mixed marks on its customer retention efforts. On the one hand, the company continues to release new features and integrations that add value and address customer pain points.

For example, in February 2025, Mitel and Genesys announced a partnership to bring the benefits of Genesys’ customer experience platform to Mitel customers.

This is an excellent way to slow customer migration away from its platform.

However, at the same time, Mitel has also made it “seamless” (their words, not mine) to go from a Mitel-powered on-premises deployment to a hybrid deployment including Zoom and others.

To be fair, the goal here is to add new, cloud-powered features to Mitel deployments. However, this also paves the way for customers to migrate their telephony spend away from Mitel.

Grade: C

Watch the Bottom Line

In this area, I’d give Mitel an even lower grade.

In 2017, Mitel acquired ShoreTel for $530M. Even then, more than seven years ago, the writing was on the wall about the difficulties Mitel would face as the world turned its attention to cloud telephony.

Despite this blinking red danger sign, the company moved forward with this debt-financed transaction – a move which expanded its market share but weakened its financial position.

In 2018, Searchlight Capital Partners took Mitel private, which added significant debt to the company’s balance sheet.

In 2023, Mitel acquired Unify for an undisclosed sum. However, this deal was also debt-financed.

So, Mitel borrowed its way into a larger position in a challenged market. The current bankruptcy is largely the result of these heavily-leveraged transactions.

Along similar lines, we have yet to hear about significant cost cutting strategies from Mitel, other than a controversial 2022 debt restructuring that left its legacy investors in a weaker position, eroded creditor trust in the company, and reduced the value of its legacy debt.

[ Side Note – at the Enterprise Connect 2025 show in Orlando last week, Mitel execs mentioned that the company has implemented various cost cutting measures in recent years, but that those efforts were not promoted to the market. ]

Grade: C-

Expand Into Greener Pastures

This is yet another area in which Mitel has earned a mediocre grade.

On the one hand, Mitel has been investing in AI and contact center solutions. The company has also increased its focus on vertical solutions in healthcare, financial services, public sector, and hospitality. These are wise, albeit obvious moves.

But, we have yet to see Mitel materially expand beyond its current area of comfort. Instead, the company is banking on the power of hybrid deployments, hoping to:

• Retain its ownership of the on-prem portion of the deployment
• Increase revenue per customer through cloud services
• Gain new customers seeking hybrid telephony / UCaaS / CCaaS deployments

On paper, this reads reasonably well. However, as on-prem customers migrate into a hybrid deployment, the on-premises portion will shrink in size (seats and revenue).

Furthermore, as described above, Mitel has made it relatively painless for customers to integrate with competing cloud services. This means Mitel’s cloud services will compete against service providers offering more features, more integrations, and often lower price points. This is a battle Mitel is not likely to win much of the time.

Finally, the idea of gaining net-new customers seeking hybrid makes sense, but this will require those customers to do a forklift upgrade of their existing on-premises telephony deployment. While not impossible, this is an expensive, disruptive proposition.

Grade: C

Summary

Here’s the TLDR version.

• Mitel’s efforts to focus on customer retention have been hindered by its own efforts to offer its customers a seamless transition to cloud provider partners.
• Mitel going private and its ShoreTel and Unify acquisitions left it debt-heavy in a challenged market.
• Mitel’s search for greener pastures is focused around hybrid deployments, which puts it in head-to-head competition with cloud heavyweights.

Mitel expects its future hybrid gains (revenue, profit, users, etc.) to overshadow its ongoing on-prem declines. While not impossible, I’m clearly in the skeptical column — at least for now. I invite Mitel to convince me that my analysis is incorrect. Even better, I hope Mitel proves me wrong through stellar future results.

Who Wins and Who Loses in this Bankruptcy

Mitel wins by reducing its debt by ~ $1.15B and decreasing its annual cash interest expenses by more than $100M.

Mitel’s management wins because 15% of Mitel’s post-bankruptcy equity has been allocated to a management incentive pool. [ FYI – such incentive pools are relatively common, although 10% is more typical. ]

The legacy investors lose because their loans were subordinated to the new debt causing the value of that legacy debt to decline.

The common shareholders lose everything (a total of ~ $1.2B in market cap) because post-bankruptcy, those shares become worthless.

Final Thoughts

Mitel has been facing a wide range of challenges, including:

• COVID-19 – companies don’t need more desk phones when their people are working from home
• Market Disruption – the rise of cloud communication and collaboration tools (Teams, Zoom, Webex, etc.)
• Macroeconomic Challenges – high interest rates, high inflation, delayed return to the office, concerns over fuel prices, etc.

What did Avaya’s Mitel’s (sorry, Freudian slip) management do wrong?

They didn’t act like a company operating in a challenged market. They spent money they didn’t have and acquired companies (and market share) using money they didn’t have instead of bringing a bag lunch to work and living in a crowded studio apartment with two college buddies.

In the end, Mitel will survive. And it’s likely that most (all) of its employees will keep their jobs. Management even gains access to a new and quite generous incentive fund. [Yes – Mitel is also a financial engineering company, and in the end, management always comes out ahead.]

And Mitel’s on-prem, hybrid, and cloud-ready portfolio gives customers the option to stay all-Mitel (or almost all-Mitel) with their enterprise comms should they so desire.

But once again, the innocent early investors and shareholders are left holding the bag, while those lucky enough to have a seat at the boardroom table have their mistakes financially forgiven.

Bankruptcy may be the right option – or the only available option – for Mitel at this point, but it still feels wrong.