Voxilla.com: Why is the Avaya merger such a big deal?
Abramson: First of all, I don’t think it is that big a deal. Who bought Avaya? Two private equity groups — Silver Lake and TPG Capital — bought Avaya out because because they believe that there’s hidden value in the intellectual property Avaya has, the market share Avaya has and their ability to use that so they can go out and buy up other companies and that they can make a stronger company which Avaya couldn’t do as a public company because it’d have to reveal everything it’s doing.
As a private company than Avaya can do more than as a public company because it won’t have to report things that are material, like buying up other intellectual property or making transactions. As a private company, it can avoid the scrutiny of the public markets and of its competition. There are good market advantages if all of your moves on the chessboard can’t be watched from an outsiders’ perspective and predicted. Public companies behave very predictably.
This kind of consolidation is a change affecting the whole telecommunications industry.
Voxilla.com: What specific opportunities will this create for Avaya?
Abramson: They’ll be able to not have to report earnings which takes a lot of pressure off. They’ll be able to not have to focus on pleasing Wall Street. They’ll be able to do some more things with carriers than they could before. They’ll be able to work with greater fortitude in the enterprise market they were after. It will possibly allow them to acquire other companies more easily. They’ll be able to enter into agreements that won’t have to become public by nature — things like that.
Just so you know, I think the Avaya merger is just one more example of the private equity market looking for value in companies that are underperforming because of management neglect and poor management. You’ve got a lot of companies that are poorly run that have very high paid executives who have lost touch with where the market is going.
As a result, the large money institutions, whether private or public since a lot of your investment banks now play on both sides of the fence are manifesting a growing dissatisfaction with the leadership and the direction that companies are taking. So there’s more and more efforts in the financial world to take a stronger degree of input and control at the management level through private investment. Then they put their own people in and they put the ship on the right course and they navigate along. It’s a very happening- all-the-time story in every sector.
Avaya is a failure.
Voxilla.com: So can this merger save Avaya?
Abramson: Avaya was a failure. They continue to see their market share erode, despite what they may have claimed. Companies like Cisco have a much clearer easier to understand business model — you know what they’re about.
From the late 90s, early 2000s, Avaya was seen as this whoop-de-do great company, spawned from the lineage of Bell Labs. But Cisco cleaned its clock across the board.
Avaya’s acquisition strategy was faulty. Its sales strategy was questionable. Its technology was not necessarily always the best. Its pricing model could be questioned. Most recently, they had to go out and buy Ubiquity to keep up with the Cisco dynamic software.
It’s just like Lucent having to merge with Alcatel in order to save itself because other than its patents, it hadn’t done anything. This is just companies being fat and lazy. Meanwhile you see Wah Wei coming out of China to clean everyone’s clock for them.
The only real return on investment was for private equity to come in and take them out of the public eye and put some real management in and hopefully right the ship and get them going in the right direction.
So the merger is probably the best thing that could have happened to Avaya. Avaya was a company that was going nowhere fast. This is potentially the best thing that could happen for them. It could save them, but we won’t know until we see the direction the company will take over the next nine months. It will hopefully change.
Voxilla.com: How does this change the market?
Abramson: In the PBX enterprise telephone equipment market, it gives Avaya some room to reemerge as a different player. It gives them six to nine months of breathing room and runway. It takes them out of the scrutiny of the Wall Street sell-side analysts. It leaves Cisco, Mitel and Nortel in the public sector of companies but at the end of the day, it doesn’t change anything yet. We won’t know what those changes will be until the new Avaya management announces its going-forward strategy.
This is a tough one because Avaya’s such a blob. I never viewed Avaya as a player, as a force, and you also have Microsoft looming in that office telephone system space in a lot of different ways. It’s a good time for a company to figure out what it wants to be when it grows up.
http://andyabramson.blogs.com/
http://www.avaya.com
