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To Buy or Not Buy Avaya
By Mark Evans | May 31, 2007
TD Securities analyst Chris Umiastowski published a research report looking at the possibility of Nortel buying Avaya. He sees two reasons why Nortel would want to make the deal:
1. If well executed, a Nortel-Avaya combination see Nortel become the leading player in the enterprise telephony market.
2. It would expand Nortel’s services business given 46%, or $2.4-billion, of Avaya’s revenue last year came from services.
In terms of why Nortel wouldn’t make the deal, Umiastowski lists four reasons:
1. It look expensive
2. It could confuse customers because Avaya and Nortel share the same geographic focus - North America.
3. It wouldn’t help Nortel’s product mix.
4. Avaya’s services revenue might not be want Nortel wants given 63% of Avaya’s revenue comes from maintenance such as moves, adds and changes.
“Therefore, we do not see a deal being likely between Avaya and Nortel,” he said. “If private equity buyers were to acquire Avaya or any other PBX business of significant size. we would be slightly more bullish on Nortel. This is because acquisitions usually go along with restructuring…and restructuring often results in management distraction and lost sales opportunities (where Nortel could be the beneficiary)”.
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