Analyzing Avaya's Acquisition

Avaya's acquisition this week raises a lot of questions about what's going on not only with the company, but in the communications systems marketplace.

First, let's talk about some of the company-centered concerns.

One is the acquisition is going to take the company private, which immediately makes customers and resellers concerned about the inability to see what's going on financially.

Another is that it is being acquired by private equity firms -- Silver Lake LP and TPG Inc. Nine time out of 10, this means there is going to be some belt tightening. A fear of customers and partners there is that some of the lower-selling but service-oriented business partners could get cut.

And, even if the company were acquired by a competitor like Nortel, which is rumored to have made an offer that was rebuffed, why is Avaya even on the market? Its financials look OK.

This is where I shrug my shoulders and start looking at what is happening outside the company that might have some future impact. Here are some thoughts off the top of my head:

*There are a number of competitors tackling the PBX market from and IP-only heritage and some even from an open source software approach. Their systems and their companies are more nimble and their cost structures, and thus prices, are lower. This competitor class could be putting pressure on Avaya at one end.

*On the other end, there is Cisco -- a data-oreiented company that is vigorously attacking the traditional PBX vendor market both with its Unified Communications Manager products and its LinksysOne products, which incidentally, made some big announcements this week, too.

What may be even more threatening at the top end is the entrance of yet another giant competitor in Microsoft. This is a company that not only shares Cisco's data orientation, but takes it one step further with a software-orientation. Plus it's installed base is well ... ginormous.

I am not sure how concerned Avaya has been about the smaller competitors, but it has responded with some interesting products like Quick Edition to stave off defectors even in the low end.

Facing competition from the likes of Microsoft could be another story. But I would think Avaya would be under no less or greater pressure than are all legacy PBX vendors whose customers use Microsoft computing platforms and applications.

So, then,  is Avaya's acquisition at the beginning of a trend? Mitel just bought Inter-Tel after all. While both companies are much smaller than Avaya, they are joining forces to become more competitive in the IP communications space serving SMBs.

And, what about Nortel. It was rumored to have bid for Avaya. Will it be seeking out another purchase or merger if it doesn't get a second shot at Avaya (the terms allow Avaya several weeks to consider other offers).

It will be interesting to see how the market takes shape in the next 12 to 18 months. It could look a lot different.

Let me know what you see happening. Post a comment or write me at khenderson@vpico.com.