Industry chatter has been particularly loud around Avaya and Mitel this week after the Wall Street Journal announced that Mitel is making a bid for the rival UC giant.
Earlier this month, we revealed that multiple bids were imminent for Avaya, with companies like Searchlight Capital Partners (Mitel’s venture capital partner) showing interest. Now, the Journal's latest update on Mitel's potential acquisition of Avaya has suggested that the company is willing to pay up to $22 per share - valuing Avaya at more than $2 billion.
It's fair to say that the potential purchase has attracted the interest of countless companies and partners in the Comms world. I spoke to leading Avaya Cloud Partner Formation about what the deal would mean to the future of Avaya as a communication giant.
Interest in an Avaya Purchase is Growing
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Mark Tyers (left) and Dan Cholerton[/caption]
One thing that both Formation Tech co-founders Dan Cholerton, and Mark Tyers agreed on, is that people are keen to get a slice of the Avaya pie. The fact that multiple Private Equity (PE) houses have begun to show interest in Avaya as an investment opportunity has to be a positive thing. Already, countless companies are seeing Avaya as a growing investment opportunity, thanks to its impressive portfolio of industry-leading products.
Ultimately, as Mark and Dan noted, private equity is all about growing companies. For PE investors to be showing they're interested in Avaya, indicates a consensus that Avaya is a valuable growth opportunity. Avaya is not standing still or suffering from any stigma as a result of Chapter 11; they're firmly moving forward.
When I asked Dan and Mark whether a Public or Private deal would be more appealing to Avaya, Dan noted that there's always considerable pressure on publicly listed businesses. "You're under the microscope and accountable to the shareholders. Of course, there's pressure with a private investment firm too, but it's hard to argue that Private equity is more challenging”
Addressing the Negative Sentiment in the Market
Whenever the rumour mill begins churning in the unified communications market, there are always companies on both sides of the fence. Dan and Mark noted that there's a lot of "scaremongering" in the industry right now, from people suggesting that a bad outcome to a bad 2007 PE deal would mean that all PE deals have to be bad.
"As always, it's important to look at the individual circumstances. Straight after the TPG/Silverlake deal, we entered a huge global recession. This recession contributed to a huge market shift from capital intensive hardware to software communication services. This led the valuation that Silverlake had placed on Avaya to become outdated"
Ultimately, the structure of the deal established in 2007 did lead to a Chapter 11 situation for Avaya, because debt was readily available and cheap to service. "Many of the PE deals, such as the Silverlake/TPG one with Avaya were structured to place huge amounts of debt on the business. This became a problem when the market and economy suddenly changed. However, the PE industry as a whole has learned from that time. The PE space is more pragmatic in its approach to investment now."
What Would an Acquisition from Mitel Mean?
Mitel and Avaya are both on a very similar journey at the moment. The synergies between the two companies are enormous, but it's difficult to say for sure whether an acquisition would be a positive thing at this time. Both vendors are on the same journey, moving their propositions subscription based UCaaS and CCaaS models”
