Los Angeles-based value firm NWQ Investment Management relinquished 44.2% of its stake in Mitel Networks Corp. (MITL, Financial), in which it was the second-largest shareholder, as an investment group prepares to take the company private, it reported Thursday.
NWQ’s sale consisted of 4,778,951 shares, executed at a price around $11.16 on April 30. Starting the position in the second quarter of 2014 and accumulating shares as the price dropped secured the firm a gain estimated around 17%, based on quarterly average prices.
The stock is up 35% year to date because of the $2 billion offer from the investment group, which is led by private equity firm Searchlight Capital Partners. According to the terms of the deal, the group will pay Mitel shareholders $11.15 per share, a price 24% above the 90 calendar-day weighted average.
The acquisition of Mitel deepens Searchlight’s foray into the cloud. Mitel, which focuses on business communications, facilitates 33 million cloud connections per day and has the largest market share in Europe, the Middle East and Africa. In 2016, Searchlight made an equity investment in Rackspace, a cloud outsourcing company, taken private by another firm for $4.3 billion.
Mitel also held allure for other value-oriented managers. Keeley Asset Management was among its largest fund shareholders, while Steven Cohen (Trades, Portfolio)’s Point72 Asset Management and Paul Singer (Trades, Portfolio)’s Elliott Management owned shares.
Mitel was the third-biggest position in NWQ’s small-cap value fund portfolio as of the end of the third quarter. Managers of that portfolio identify investment targets through bottom-up research and look within industries with improving fundamentals.
Mitel’s financial situation included three years of declines in cash reserves, dwindling to $43 million at the end of the first quarter. Long-term debt was $585 million at the end of the first quarter, up from $225 million the same quarter a year earlier.
Revenue wavered over the past decade and rose to $1.06 billion for 2017, an increase from $988 million for 2016, primarily due to an acquisition. Excluding the results of the acquisition, revenues declined 2.2%. Cloud, which makes up a quarter of the company’s revenues, was by far its fastest-growing segment, showing a 52.3% rise in revenue, primarily as a result of the acquisition. Excluding the added company, cloud was still its fastest-grower, up 13.7%.
In 2017, the company reported a net loss of $50 million, its fourth consecutive year of net losses.
NWQ had six other holdings in the communication equipment industry at the end of the fourth quarter, although its 8.92% stake in Mitel was the largest. Next in size were Viasat Inc. (VSAT, Financial) and ARRIS International Plc (ARRS, Financial).
Searchlight’s acquisition of Mitel is slated to close in the second half of the year but is subject to a 45-day period in which it may look for another buyer. The deadline is June 7.
See NWQ's portfolio here.
