UC Today brought you news at the end of March that Avaya may well have been considering a leveraged buyout from an unknown private equity firm. The plot has now thickened with various sources intimating that an auction process may be underway or imminent.
Speculation has been fuelled by apparent buoyancy in the Avaya stock price on the NYSE with shares rising by several percentage points from their value at the start of this week. As we reported previously the potential value of Avaya far exceeds its stock market value, of around $2 billion, with estimates of around a $4-5 billion total acquisition value including the several billion dollars of company debt that was last reported at the end of 2018.
The situation has developed as it appears there are several, highly capable, interested parties who have made discreet enquires to major shareholders. Although unconfirmed, various reports have named private equity firms Permira Holdings, Searchlight Capital Partners and Apollo Global Management LLC. Some of the potential suitors already represent knowledge, and/or have a vested interest, in the global communications market. Searchlight Capital Partners acquired Avaya rival, Mitel this time twelve months ago and Permira Holdings own contact centre solution specialist Genesys. Were either of the aforementioned parties to successfully acquire Avaya, in addition to their existing portfolios, speculation would undoubtedly continue with the possibilities of mergers or consolidations of the businesses. Apollo Global Management LLC also have their own interest as they own West Corp, the technology-enablement company who specialise in unified communication and collaboration services.
The exact logistics in terms of the potential upcoming auction process is still unknown. Market news giant Bloomberg first reported that Avaya was working in conjunction with an investment bank to assist with the auction process after receiving enquires from private-equity firms and, potentially, other parties in addition. Interested parties are likely to be contacted and consulted to provide concrete offers for Avaya, whether this forms part of blind or open auction process may never be revealed. The timeline for this process is yet to be determined but firm bids are expected to be lodged over the coming weeks.
The news of the leveraged buyout offer from March and now the potential auction follows an uncertain financial period for Avaya. After successfully surviving the Chapter 11 process at the end of 2017 the future seemed bright, but financials released since then have painted a different picture. The company has made a conscious and public effort to transition its business model from that of traditional hardware vendor to a more software and services orientated company. A transition such as this is never an easy process, which appeared to be part of the reasons that Mitel made a move back to private ownership in 2018. Despite quarterly revenues rising, Avaya's revenue figures from Q1 2019 were down in comparison to the same period in 2018. These figures apparently have not appeared to match Wall Street's forecasts.
