Two of the country’s unified communications companies are coming together to make an operating firm with US$1 billion in sales.

Ottawa’s Mitel Networks Corp. is buying Concord, Ont.’s Aastra Technologies Ltd. in a share and cash deal worth $392 million. When the transaction is finished 57 per cent of the stock will be held by Mitel shareholders, while the remaining 43 per cent will be held by Aastra stochholders.

Aastra’s fortunes have been up and down. Although it had 62 consecutive profitable quarters, it began looking at its options following its Q1 results that posted a small after tax profit of $85,000 due to falling revenue. Last month its Q3 numbers were better with revenue of $139. 6 million, up 1.9 per cent from the same period in 2012. Profit was $5.5 million, compared to just under $1 million for the same period a year ago.

In a recent report Kris Thompson of National Bank Financial noted Aastra is generating “reliable, yet declining, cash flow.” After the transaction was announced he issued a note to investors calling the deal “fanatastic, as the alternative was Aastra spending money on expensive technology acquisitions, which was a risk.

“The combined company will be much better positioned to generate sustainable cash flow in a declining market.”

The two companies “are perfect for each other,” he wrote.

Aastra, which has 1,900 employees, makes the MX-ONE multimedia communications server, a contact centre and a number of desktop phones largely aimed at enterprise-sized companies. It does much of its business in Germany, France, Sweden, Spain and Switzerland.

Mitel, meanwhile, has successfully shifted from hardware-based PBX to software-based systems, largely to small and medium businesses. It believes the deal will help position itself in UC cloud services. It has about 1,800 on staff. It’s main markets are the U.S., Canada and the United Kingdom.

Both companies have large reseller and system integrator partner networks.

In a statement Mitel said when the acquisition is done it will have the number one market share in unified communications in Western Europe, a US$100 million cloud business, and a global installed customer base ready for upgrade as the US$18 billion business communications market prepares to migrate to software-based cloud services.

Mitel [TSX: MNW] CEO Richard McBee will continue to head the company. Francis Shen, Aastra’s [TSX: AAH]  co-CEO will be chief strategy officer, while the other co-CEO, Tony Shen, will become chief operating officer.

“The business communications market is ripe for consolidation and on the cusp of a mass migration to cloud-based services,” McBee said in a statement. “We believe that small competitors with narrow focus and limited global reach will quickly be marginalized.”

“Aastra’s solid financial structure, complementary portfolios, geographic reach, and large installed-base immediately augment and expand Mitel’s market footprint, enabling us to capitalize on a unique opportunity to leap-frog the competition and lead the market.”

Mitel was co-founded by Ottawa entrepreneur Terry Matthews. Matthews and Francisco Partners, a San Francisco technology investment firm, control 63 per cent of its stock.  Francis and Tony Shen control 14 per cent of Aastra shares.

Aastra shareholders will be asked to approve the deal in January, 2014.

They compete in a crowded market with giants like Cisco Systems Inc., Avaya Inc., Alcatel-Lucent and NEC, as well as smaller companies like ShoreTel and Siemens.

In a recent report Dell’Oro Group noted hosted and cloud based solutions are attacking the traditional PBX market as organizations shift towards spending on unified communications as an operational expense.

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