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Potential Buyers for Avaya’s Networking, Collaboration Businesses

Avaya — amid falling revenues and private equity ownership — is considering financial options that could involve selling some or all of its businesses. The most likely outcome seems to be Avaya selling off a piece of its business. But there are plenty of wildcards ahead, which could trigger concerns among Avaya’s channel partners.

Avaya CEO Kevin Kennedy

Avaya CEO Kevin Kennedy

As part of a Q2 earnings announcement, Avaya CEO Kevin Kennedy said it has retained Goldman Sachs and Centerview Partners as financial advisors “to assist in comprehensively assessing alternatives and evaluating expressions of interest which address the company’s capital structure.”

To raise the funds necessary for its debt obligations, Avaya will likely have to convert debt for equity and/or sell off assets, according to NoJitter.

In the meantime, software and cloud revenues aren’t growing quickly enough to offset falling hardware revenues. Total Q2 revenue was $904 million, down $54 million compared to the prior quarter, and down $91 million year-over-year, as demand for unified communications products continued to contract, Avaya said.

In stark contrast, Cisco Systems last week announced stronger-than-expected sales and profits amid a similar shift from hardware toward software and subscription services.

Avaya Abandoned IPO, Attempted Sale to Oracle

Silver Lake and TPG Capital acquired Avaya in 2007. Amid weak IPO prospects, those private equity firms considered selling Avaya to Oracle in 2013, but talks between the companies fizzled, according to Reuters.

More recently, Avaya in early 2016 spun off a portion of its cloud-based communications platform as an independent subsidiary called Zang. The Zang business also includes Esna Technologies, a real-time collaboration platform that Avaya acquired in 2015, The Wall Street Journal notes.

Avaya: Networking Strengths, Cautions

In addition to its collaboration business, Avaya competes against a dozen other companies or so in the data center networking business.

In the latest Gartner Magic Quadrant results for Data Center Networking, the research firm the following strengths and cautions about Avaya’s networking business:

Strengths:

  1. Avaya can deliver a well-proven, mature, end-to-end fabric that reaches from the data center to campus and branch locations.
  2. The solution provides strong automation of data center network functions.
  3. Avaya offers a highly scalable multicast solution that is simple to provision and manage, where only the edge nodes need to be provisioned.
  4. Avaya is leveraging the continued trends toward merchant silicon by delivering its software preloaded on validated original design manufacturer (ODM) hardware. While predominantly aimed at cloud and service provider customers, this presents an opportunity for Avaya to increase its presence in the market, and represents a more streamlined and supported way of taking advantage of ODM pricing.

Cautions:

  1. As the smallest vendor analyzed in this research, Avaya suffers from a lack of both market visibility and technical resources and partners that are familiar with their solutions. Enterprises need to ensure local partners and Avaya have resources with appropriate deployment experience.
  2. Avaya’s networking portfolio has received relatively little leverage and investment compared to Avaya’s core unified communications business.
  3. Long-term viability in the DC networking market is questionable due to Avaya’s continued revenue decline.
  4. Avaya currently lacks certification with VMware and has limited capabilities with Puppet and Chef for organizations that are looking for application integration for network provisioning.

Avaya: Potential Buyers, Suitors, Investors

Take a closer look at that Gartner Magic Quadrant report, and it’s hard to imagine many of the 12 listed companies placing a bid to buy some or all of Avaya.

The other data center networking companies include:

Arista Networks: Amid an ongoing legal tussle with Cisco, does Arista really want to buy a shrinking business?

Brocade: The company is seeing revenue declines across most businesses. This big priority is jumpstarting growth via the Ruckus Wireless buyout.

Cisco Systems: An unlikely suitor since Cisco typically buys small, fast-growth, disruptive businesses, ChannelE2E believes.

Dell: Michael already has his hands full trying to finalize the $67 billion buyout of EMC.

Extreme Networks: Hmmm… Could the slow-growth company leverage some Avaya technologies in the data center?

HC3: Already aligned with HP Enterprise outside of China, a bigger deal with Avaya seems unlikely to ChannelE2E.

HP Enterprise: Would CEO Meg Whitman really want to double down on hardware amid HP Enterprise’s own march toward hyberconverged data centers and cloud partnerships?

HuaweiHmmm… Not exactly known for marketing and branding, could the Avaya brand in North America assist?

Juniper Networks: Juniper already has its hands full with weakness in the service provider market.

Lenovo: Key data center alliances already involve Juniper Networks, Nutanix and SAP. Lenovo acquired IBM’s server business to gain scale. We’re not convinced a similar alignment with Avaya would deliver the goods…

NEC: Actually, this is an interesting possibility. NEC has spent little on marketing its networking capabilities, Gartner notes. And Avaya does have some brand recognition that could be worthwhile, ChannelE2E believes…

VMware: All roads lead to NSX and software-defined networking (SDN) rather than hardware acquisitions…

Avaya: Private Equity Buyers?

Of course, there’s also a chance that yet another private equity firm could step in to buy some or all of Avaya from Silver Lake and TPG Capital.

PE firms have been very active over the past couple of years — though mostly with software companies that are converting to cloud and subscription services, rather than hardware companies moving to software.

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3 Comments

Comments

    Jim Lippie:

    Great write up Joe! I have a good friend that is an Avaya partner and I have been worried about his business for years. He has been selling against the cloud instead of selling cloud solutions himself. From my perspective Avaya was way too late to the cloud party and has not done enough to educate and empower their partners for long term success.

    Current Employee:

    Wow!! What a dirty politics!!!!!

    In one hand our executives are taking away a hefty termination package and on the other hand asking employees to take unpaid leaves. (Reduced Work Schedule)

    https://www.sec.gov/Archives/edgar/data/1116521/000111652116000086/a8-k_may192016xchgstocompp.htm

    Lloyd Rogge:

    More comments on the retirees we’re just hanging out there. Very uncomfortable.

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