Private equity firms scoop Avaya for US$8.2bn

6 Jun 2007

Private equity firms Silver Lake and TPG Capital have acquired data networking giant Avaya for US$8.2bn. Avaya employs 170 people in Ireland, out of which 110 are engaged in research and development (R&D).

The merger agreement has been approved by Avaya’s board of directors and shareholders are due to vote on the deal.

Avaya has a market capitalisation of over US$6.1bn.

Silver Lake and TPG are paying a premium of 28pc over Avaya’s closing share price of US$13.67 on 25 May and have beaten players such as Nortel, Cisco and Microsoft in their quest to acquire a strong player in the burgeoning data communications market.

Avaya acquired Irish video conferencing company Spectel in 2004 in a US$103m all-cash transaction. The company’s Irish customer base includes large enterprises like Bank of Ireland, Conduit, Ulster Bank, O2, IBM and a large number of small to medium-sized enterprises.

“In addition to delivering compelling value for our shareholders, the partnership with Silver Lake and TPG also creates clear value for Avaya employees and customers,” said the company’s president Louis D’Ambrosio.

“The deal for Avaya in one sense is a vote of confidence in the company and the IP telephony business,” said Ovum principal analyst David Molony. “That is because private equity typically is looking for businesses with reliable cash flows it thinks can be improved quickly and substantially.

“Until now, telecoms equipment vendors had been left to sort out their own financial futures. Avaya is different in that it is not encumbered by the need to fund infrastructure businesses. Nonetheless it may still have missed out on the drive to consolidation and partnership,” he said.

Maloney said that Nortel and Cisco Systems, arguably Avaya’s two main rivals in IP telephony and unified communications systems, have both agreed to develop new services on the back of Microsoft’s Office Communications Server (OCS).

“Avaya may have had a chance to join them but apparently chose not to. Instead it has its own expanded UC project in development. Whether that can be brought to market independently is really a question now for the new owners to consider,” Maloney added.

By John Kennedy