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Plantronics and Polycom: David Buys Goliath

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Plantronics and Polycom: David Buys Goliath
    

By: -
28 Mar 2018
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In what will most likely be one of the biggest moves in the conferencing & collaboration industry in 2018, Plantronics announced its intention to acquire privately-held Polycom in a deal that they value at $2 billion.  We take a look at this deal from two perspectives.

1) What is the product / solution fit?

At first thought, while both companies are players in the same industry, a direct fit might not be apparent – an industry leader of audio communication devices acquiring a leading provider of phones and video conferencing systems.  Dig a little deeper, however, and some product / technology “ah hahs” are found.

Polycom’s line of business phones – both desktop and speakerphones – are a natural extension of Plantronics audio devices.  So much so that Cisco recently announced its own line of headsets to use with its phones. 

The Plantronics fit with Polycom’s line of video conferencing systems may seem a little harder to figure out.  And there is a complicating trend: Polycom’s “traditional H.323 / SIP” video endpoint (and related infrastucture) business is giving way to “service-attached” endpoints which are optimized to work with specific cloud services.  In line with this trend, Polycom’s own room system product line has been split with endpoints designed specifically to work with Microsoft Skype for Business. Other “service-attached” video conferencing systems include Google Hangouts Rooms, Cisco Spark Rooms, Zoom Rooms, and othersHow does the new Polycom / Plantronics turn these other "rooms" into an opportunity?

One thought is that Plantronics, a device company, takes pieces of technology from Polycom’s systems – room audio capture and processing, auto frame and zoom cameras, etc. – and packages them as add-on devices / components for others to use to build “service-attached” systems.  Thus, Polycom technology (and patent portfolio) could form the basis for an expanded Plantronics product line to challenge the room-oriented video add-on devices from Logitech, AVer, Huddly, Owl, and others that are being used to create “service-attached” systems. Also of note: Plantronics has distribution channels that are very appropriate for these devices, and the Polycom brand would be instantly recognized and very desirable for a line of room-oriented video devices / peripherals.

Buried in the press release is the notion of Polycom expanding Plantronics' “management and analytics services.”   Plantronics has quietly and quickly evolved into a data and analytics company. Stick with us here – the evolving line of headsets they provide "fit' into a UC ecosystem in a new way – they provide deep data and insight into the actual use experience, capturing quality data including the quality of audio, signal strength, and more. The insight they can provide into the actual user experience is rich and important – and they are partnering with other performance management solutions like Nectar to help provide an end-to-end perspective on the user experience. Their direction is to leverage what they know about the user experience – which is deeper and wider than you might think – and add value above and beyond just sending audio into ears.   Polycom expands this footprint into the conference room, and interesting possibilities materialize – the ability to map the user experience from headset to boardroom, authenticate users to systems, etc.

2) What are the organizational considerations?

Financial types always consider the cost efficiencies that can be gained with a merger – and there are ample here: Redundancies in sales and channel management, finance and administration, manufacturing and distribution, ... and product engineering / R&D.  The press release claims to expect $75 million in annual run-rate cost synergies within 12 months of transaction close in Q3 of this year.

Siris Capital Group completed its acquisition of Polycom in September, 2016 for roughly $2 billion and announced that Mary McDowell was taking over for Peter Leav.  This new acquisition is going for about $2 billion.  Presumably Siris Capital pulled some cash out during the last 18 months, but the Polycom valuation is about where it was two years ago when Mitel attempted its purchase at the behest of Elliot Capital Management. 

Plantronics – which has been growing the past five years and which sold $877 million of gear in 2017 – is on the upswing while privately-held Polycom revenues have seemed to be flat to in slight decline – resting at $1.1 billion in GAAP revenue for calendar year 2017.   Note the smaller company (David) is buying the bigger company (an almost Goliath).

Bob Hagerty

Polycom sometimes has seemed to have had a revolving door at the C Suite level, with new CMOs and CEOs about every 18 months for years now.  But: we hear that Bob Hagerty, who has been on the Plantronics board since 2011 – and no doubt played a major role in driving this acquisition – is being elevated with this move to be Chairman of the Board. Industry veterans will recall that he was at Polycom from the early days of its acquisition of ViaVideo and then PictureTel through the boom years (1997-2010) and he may be one of those best positioned to help make this new organization work well.

We had heard of two Polycom Distinguished Engineers leaving the company in the past few weeks – competition is high for smart engineers who understand audio / video – and there may be some negative reaction from the ranks of Polycom.  (On the other hand, Polycom people, you will now be part of a publicly-traded, on-the-rise company and this could be a very good thing for you.)

Our Bottom Line

We think of this as two complementary firms, one short, one tall, with complementary skills: one good with a slingshot, one good with a club. Now David and Goliath are better positioned against the likes of Cisco, Huawei, ZTE, Kedacom, and ... potentially Logitech.

All in all, we cautiously give this a thumbs-up – if the dealt hand is played well.  There are no guarantees: remember that Logitech's acquisition of LifeSize did not work out synergistically, for a wide variety of reasons.  Who stays and who goes?  Does the new entity go by Polytronics or by PlanCom?  This should be the least of their concerns! Two strong brands, two strong product lines, lots of innovation and patents – something to wrangle out.