Avaya keeping options open as it continues to explore other sale possibilities
Avaya’s future may rest with rival Mitel rather than a private equity firm, as the latter has reportedly proposed merging the two companies to create a telecommunications powerhouse.
The Lowdown: According to published reports, Mitel pitched a plan that would merge it with Avaya to create a $5 billion provider of telecommunications equipment and unified communications services. Avaya shares are trending up following the report.
The Details: Under the proposed merger, Mitel shareholders would own about one-third of the new company. The remainder would go to publicly traded stock markets. Mitel would also inject up to $150 million into stock buybacks. In its recent earnings report, Avaya said it would continue to explore “strategic alternatives” to its current ownership and would make a decision on the company’s future direction by mid-September.
No deal is certain between Mitel and Avaya, and Avaya will likely continue to explore all options on the table. According to published reports, interested parties include Apollo Global Management LLC, Permira Holdings, and Searchlight Capital Partners.
The Impact: If Avaya and Mitel come to terms on a merger, it would reshape the telecommunications equipment, call center, and UCaaS channel and landscape. Such a deal would likely result in the merger and reorganization of both companies’ channels as well.
Background: Avaya and Mitel have flirted with the idea of merging since the beginning of 2019, when speculation began that Avaya was searching for an exit strategy. Since that time, Avaya has revamped its channel program and incorporated more cloud products into its portfolio. Through the recast Avaya Edge program, Avaya partners had more incentive to sell cloud-based products such as unified communications.
Two years ago, the company underwent a restructuring that set it on the course of developing more services. In its most recent earnings report, Avaya said 59% of its sales are recurring revenue. Avaya has also been investing in product and channel development to support the generation of more service-based revenue.
Counterpoint: While the market is reacting positively to the potential of a Mitel-Avaya merger, Reuters reports Avaya is exploring an outright sale to private equity firm Clayton Dubilier & Rice. Unlike the Mitel merger, a sale to CD&R or another private equity firm would net shareholders a premium value for the company.