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ShoreTel, a provider of IP
phone systems with integrated unified communications (UC), announced it has
signed a definitive agreement to acquire M5 Networks, a specialist in UC. 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. M5 entered into hosted UC in 2000 and today provides
more than 2,000 companies with communications on a subscription basis.

The acquisition of privately
held M5 enables ShoreTel to expand its solutions into the cloud and reach a
market segment of customers looking to deploy IP communications through a
hosted model. Industry trends, such as cloud computing, virtualization, data
center economics and the flexibility of services-based models, are driving the
unified communications as a service (UCaaS) market, which provides businesses with
another way to bring unified communications to their workforce.

Following the close of the
acquisition, M5 will be operated as a ShoreTel business unit led by M5 CEO Dan
Hoffman. Hoffman will become president and general manager of the new business
unit. ShoreTel is acquiring M5’s entire operation, including its customer base,
distribution capability and proprietary network, and will be extending offers
to substantially all its employees.

“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,”
said Peter Blackmore, CEO of ShoreTel. “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.”

While the engineering teams
will remain separate, they will cooperate and coordinate in order to leverage
the innovation and best practices of both groups so that both product road maps
will benefit from the combined capabilities. The current ShoreTel Champion
Partner reseller program will evolve to include the ability to offer hosted
services once the reseller has been qualified and certified.

“M5 is proud to be one of
the leaders in the UC cloud market. We have achieved this position with a very
strong management team and an excellent product offering that is the simplest
in the industry,” said Hoffman. “Joining forces with ShoreTel enables us to
reach our ambitions of scale and cement our position in the hosted UC

According to a recent report
by IT research firm Gartner, the IP voice as a service market is expected to grow
at a 36 percent compound annual rate in North America through 2015, to reach
$2.2 billion.