Why Avaya deal is good for customers

For the price of $8.2 billion, private-equity firms Silver Lake and TPG Capital have offered to take Avaya private. This is the largest such transaction ever in the enterprise networking and communications arena. And it’s a positive development for Avaya’s shareholders, employees and most importantly its customers.

When the rumors started to spread that Avaya was up for sale, Cisco and Nortel were mentioned as potential buyers.

I never did think that Nortel would or could step up to buy Avaya, because it simply did not make sense. The financials could not work for Nortel, which carries a market cap of only $11.5 billion. Most importantly, the product overlap is huge, and integrating the two companies is well beyond the resources available to the Nortel executive staff at the moment.

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For the price of $8.2 billion, private-equity firms Silver Lake and TPG Capital have offered to take Avaya private. This is the largest such transaction ever in the enterprise networking and communications arena. And it’s a positive development for Avaya’s shareholders, employees and most importantly its customers.

When the rumors started to spread that Avaya was up for sale, Cisco and Nortel were mentioned as potential buyers.

I never did think that Nortel would or could step up to buy Avaya, because it simply did not make sense. The financials could not work for Nortel, which carries a market cap of only $11.5 billion. Most importantly, the product overlap is huge, and integrating the two companies is well beyond the resources available to the Nortel executive staff at the moment.

An Avaya-Nortel deal would have been Cisco’s best-case scenario, since it would have taken a year plus for Avaya and Nortel to figure out and implement a rationalization plan. Cisco would have used that time for winning deals so customers would not have to endure product end-of-life risk and uncertainly.

I did think that an Avaya and Cisco combination could work. Yes, there is overlap on the IP telephony space, but Cisco is often knocked because it does not have a backward migration offering. Also, Cisco would have picked up a large and loyal customer base, as well as being provided with entry into the high-end contact center market. Perhaps Cisco is not sold on communications-enabled business processes, which is Avaya’s future as it now has the environment to fully develop into a software and services concern.

So what do Avaya’s stakeholders get from this transaction? Louis J. D'Ambrosio, Avaya's president and CEO, has been busy resetting the culture button at Avaya while surrounding himself with an experienced executive management team from the software industry.

He has added Jocelyne J. Attal, from IBM’s Websphere, as chief marketing officer; Charlie Ill as senior vice president, Global Sales, formerly president of Sales at BEA Systems; Stuart Wells from Sun Microsystems is senior vice president, Global Communications Solutions running the entire Avaya product offering portfolio. The recruitment of software executives into Avaya is happening at all levels, not just at the executive management ranks.

These executive management additions are part of a concerted strategy to turn Avaya into a software and services concern. As a private company Avaya will now have the flexibility to implement this long-standing plan.

Out from under the quarterly scrutiny of the financial markets, Avaya can change compensation plans, rationalize product lines away from TDM toward IP telephony, and invest more heavily in software and service development without the unpopular task of warning Wall Street of expectation changes.

It’s difficult to impossible to transition a public company without being heavily penalized with stock sell-offs, which bring many firms into a downward cycle. Resetting Wall Street expectations usually results in downward stock pressure, which impacts morale, makes it difficult to recruit and retain top talent, and provides competitors with a vulnerability to exploit. Avaya will have the opportunity to implement its software and services plan without these distractions.