M Partners Says Keep An Eye On Mitel

“Mike and Terry Electronics” or “Mike and Terry’s Lawnmowers”?

While Michael Cowpland has shot down the latter explanation of the origin of the company’s name, the reasoning is based on an actual event.

In 1973, Cowpland and Terry Matthews, who had met at Nortel forerunner Bell Northern Labs, intended to import and sell cordless electric lawnmowers. Only trouble was their first shipment was lost at sea. This was taken as a sign to the now-legendary partners, who immediately forgot about the lawnmower business and began to produce a telephony tone receiver product that was based on Cowpland’s Ph.D. thesis.

By 1981, Mitel (NASDAQ:MITL) had reached the $100 million dollar annual revenue mark. Then, in 1985 British Telecom acquired a controlling interest in the company. Matthews then went on to form Newbridge Networks, which was sold for more than $7 billion to Alcatel in 2000. This made Terry Matthews, who emigrated to Canada in the 1960’s, the first billionaire in the history of Wales. Cowpland went on to found Corel which, at one point, was Canada’s largest tech company.

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Nearly four decades later the iconic Canadian company, which has operated in various incarnations, is now public, but not in Canada. In April of 2010, Mitel IPO’d on the Nasdaq at $14 a share. Today, with the stock hovering around the $3 mark, M Partners analyst Ron Shuttleworth told clients in a morning note that he is adding the Ottawa company to his watchlist.

Shuttleworth says that after poor results in 2010, Mitel’s board made major changes that improved the company’s bottom line. Today the company does over $650 million in revenue, with adjusted EBITDA of $70 million. In meeting with the company recently, Shuttleworth believes Mitel’s “Stumble out of the Gate” from its IPO is over and that the company’s upcoming Q3 2012 results will be the first to fully reflect changes made to the business.

Mitel’s sweet spot, to date, has been with the small to medium sized business, who it provides IP telephony platforms, as well as hardware such as handsets, peripherals and appliances, and UCC applications that integrate voice, video and data. More recently, the company has begun to make inroads in the large enterprise market, with a portfolio of products that can support organization with up to 65,000 users.

Shuttleworth says Mitel, despite being a greybeard, may be better prepared to capitalize on the industry shift to IP-based communications because the company has invested heavily in R&D. He points out that the company currently spends over $50M per year, or 8.1% of total sales on research and development.

At press time, shares of Mitel were down 0.6% to $3.15.

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