NEW YORK (The Deal) -- Activist investor Elliott Asset Management suggested Polycom (PLCM) can become an "accretive M&A machine" in a Thursday letter, and urged the communications company to consider merging with Mitel  (MITL) .  

Shares of Polycom recently traded at $13.19, down 1.2% while Mitel fell by less than 1% to $8.15.

Polycom and Mitel are unified communications providers, offering phone, video conferencing and other services online.

Elliott portfolio manager Jesse Cohn wrote that the firm has invested about $100 million in each of the companies, 6.6% Polycom stake and 9.6% Mitel position. The firm has also invested in ShorTel  (SHOR) , which Mitel unsuccessfully pursued last year.

Cohn wrote that Polycom has a "track record of underperformance" making it one of the lowest-valued companies in enterprise software at five times Ebitda for the next 12 months. "In the last two years, Polycom has already responded by cutting costs, buying back stock and changing management; none of which has generated value to stockholders," he wrote.

Mitel CEO Richard McBee has advocated consolidation among the unified communications companies.

"It makes a lot of sense," Canaccord Genuity analyst Prabh Gowrisankaran said regarding Elliott's proposal.

Elliott suggested that the deal could generate $100 million to $150 million in savings and other benefits, while giving the companies greater scale. Mitel has already been an aggressive consolidator. "People were trying to figure out what the next target could be," Gowrisankaran said. "Mitel's balance sheet is highly leveraged it would be hard for them to pull off a bigger acquisition."

The company made an unsolicited bid to acquire ShoreTel for $574 million last year. Mitel abandoned the bid in November, citing the refusal of ShoreTel's board to negotiate. Shares of ShoreTel recently rose 0.6% to $8.25.

Last year, Mitel acquired Aastra Technologies for $470 million, Oaisys for $5.9 million in March and prairieFyre Software for $20 million.

Cohn suggested that the unified communications sector remains "ripe for consolidation," with "small competitors with low valuations and duplicative cost structures." If Polycom rolled up the sector, he wrote, the stock could gain more than 80%.

"We believe that the ideal consolidation strategy begins with a Polycom/Mitel combination, whether those companies stay public or go private," Cohn wrote.

The merged companies would have $2.5 billion in sales and could boost Ebitda to $500 million, Cohn suggested. The larger group could better compete with Cisco Systems  (CSCO - Get Report) .

If Polycom paid $10 per share for Mitel, Elliott suggested, the company could make a 95% return by the end of 2018.

If Mitel and Polycom merge, ShoreTel would be a logical next target. "They sell similar to Mitel but they are strong in the U.S.," Gowrisankaran said.

Elliott noted that ShoreTel has traded below Mitel's $8.50 takeout offer. "A combination between Mitel and ShoreTel made sense a year ago, and ShoreTel would still be a compelling acquisition target for a combined Polycom/ShoreTel.

Mitel said that it shares Elliott's views on consolidation, in a statement issued Thursday. "Mitel's senior management has consistently discussed its intention to consolidate the market, and in recent years has proactively leveraged M&A activity to successfully deliver shareholder value," the company stated.

Cohn pointed to a Sunnyvale, Calif., networking and security company Blue Coat Systems Inc. Thoma Bravo LLC bought the company in 2012 for $1.3 billion, and flipped the company to Bain Capital earlier this year for $2.4 billion.

A Mitel spokeswoman said the company is reviewing the filings. Representatives of Polycom could not immediately be reached.