A few days back Avaya announced that it’s going private. It has accepted a $8.2b deal from TPG capital and Silver Lake Partners. At this point, it’s not clear how going private will help it compete. Everybody, including the senior leaders, appear to be in the dark about what the new game-plan is going to be. I have a lurking suspicion that there isn’t much of game-plan in place.
The deal, of course, has something for the private equity players. The PE guys see a company with good amount of cash on its balance sheet and a healthy maintenance revenue stream. They will be able to extract some value through clever financial engineering.
Avaya doesn’t get much from this deal – in terms of technology, products, talent - that would make it a more successful player in the market. Why then, you would ask, did the Avaya management agree to this offer from the PE firms?
I have a hypothesis that sometimes a company running a marathon – as Avaya was doing – gets fatigued and simply gives up. In a real marathon, somewhere along the half-way point, the glycogen stores run out and the mind starts telling you to slow down or stop. If you haven’t prepared for this energy depletion event, it’s very hard to go on. Companies adjusting to industry transformation are running a marathon too. Somewhere halfway through the process they feel tempted to just give up. Digital succumbed to this temptation and went into the arms of Compaq. More recently, VERITAS Software merged with Symantec more out of fatigue than any other reason. Now, I suspect, Avaya has given up although the CEO Louis D’Ambrosio would never admit that to be the case.
This capitulation is sad because Avaya was holding its own in the VoIP PBX market. It was doing well against Cisco; its market share in the first quarter was 25.3% compared with Cisco’s 25.2%. It was also doing well in the burgeoning call/contact center market in India compared to Nortel and Cisco. Generally speaking, it had been able to tap into the desire for evolutionary change on part of the enterprise customers as they migrated from traditional circuit switched technology to VoIP.
The nest stage of this story is not pleasant. My fear is that we will see demoralized employees, anxious resellers and edgy customers. And a downward spiral will gradually take hold. I hope I turn out to be wrong.
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