Avaya buyout speculation reflects churn in the VoIP market

Changes in the enterprise telephony landscape are certain, no matter where Avaya ends up, analysts say

With speculation that Avaya is in play for an acquisition, things will be different for VoIP users or the overall market, analysts and observers say, no matter what happens.

While reports fluttered last week that Avaya is seeking a buyout, either from a private equity firm or from corporate VoIP rivals Nortel or Cisco, observers say this activity could be a warning sign to IP telephony buyers to sit tight for now. With Avaya's large market share and installed-based enterprise telephony, where the company lands — if it does indeed land somewhere new — will have rippling effects.

Questions about Avaya's future were raised in a Wall Street Journal article last week, which reported that Avaya was in talks with private equity firm Silver Lake Partners, which owns several IT, networking and communications companies, including Network General, IPC, Sabre and Seagate, as well as electronics manufacturers Avago and Flextronics.

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With speculation that Avaya is in play for an acquisition, things will be different for VoIP users or the overall market, analysts and observers say, no matter what happens.

While reports fluttered last week that Avaya is seeking a buyout, either from a private equity firm or from corporate VoIP rivals Nortel or Cisco, observers say this activity could be a warning sign to IP telephony buyers to sit tight for now. With Avaya's large market share and installed-based enterprise telephony, where the company lands — if it does indeed land somewhere new — will have rippling effects.

Questions about Avaya's future were raised in a Wall Street Journal article last week, which reported that Avaya was in talks with private equity firm Silver Lake Partners, which owns several IT, networking and communications companies, including Network General, IPC, Sabre and Seagate, as well as electronics manufacturers Avago and Flextronics.

It was also reported that Avaya had already been in talks with Nortel about an acquisition in early May. That deal reportedly fell through as the two sides could not agree on whether to base the deal on Nortel cash or stock. Speculation about where Avaya would land became even greater later in the week as Cisco was mentioned in several blogs and news sites mentioned the networking giant as a potential acquirer.

"I don’t think Avaya can put this one back in the box," says Gartner analyst Bern Elliot of the acquisition speculation. "Once they start being as open as this about the possibility of acquisition or buyout, it casts a very, very long shadow. There's no way it can ever make it back the way it was."

(Elliot says he has no inside knowledge about Avaya's plans or discussions, although Gartner, his firm, is owned by Silver Lake Partners, which was reported to be talking with Avaya about a buyout).

A buyout by a competitor would certainly be a cause for alarm among Avaya's installed base. "If someone were acquiring Avaya to leverage it's installed base, then there would likely be a faster move to different platforms based on the acquiring company's products," Elliot says. Enterprises considering a major new IP telephony installation with Avaya technology "probably want to wait" until buyout speculation is settled.

For now, enterprise users say nothing much changes as to their relationship with Avaya. But managers of large Avaya voice shops say the merger talks are something they'll keep an eye on, which could affect long-term VoIP plans.

"Clearly we would want to look at the details of any acquisition or merger and assess what the long-term implications are," says Scott Mah, assistant vice president for IT infrastructure at the University of Washington in Seattle, which uses a large Avaya infrastructure for VoIP and TDM-based telephony. No matter what happens, he says, "I wouldn't anticipate any short-term changes because the Avaya product line is so strong.I can't imagine it being immediately pulled or discontinued. But [an acquisition] would change the strategic dynamic of our working relationship with Avaya. It's something we'll have to do due diligence on" if something does happen.