Takeover will accelerate Avaya repositioning, says Gartner

Avaya’s US$8.2 billion takeover will pave the way for its transition to becoming a software communications company, according to research firm Gartner.

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By  Michele Howe Published  June 11, 2007

Avaya’s US$8.2 billion takeover by investment firms Silver Lake and TPG Capital will pave the way for its transition to becoming a software communications company, according to research firm Gartner. The telecommunications equipment maker announced last week it had agreed to be purchased by Silver Lake Partners and TPG Capital. In an advisory note, Gartner said that the move would enable Avaya to accelerate its transformation from a hardware-based telecommunications platform to a software communications company. “With this acquisition, Avaya can restructure its business behind the scenes and away from public scrutiny,” the research firm said. “The investors paid a healthy premium for Avaya (US$17.50 per share – 33% more than before rumours began) and will expect to make money on this transaction. It is unlikely that this can be achieved without changes to Avaya’s previous plans,” it added. Changes likely to be introduced, Gartner predicted, include streamlining of product offerings, adding middle management with proven track records in the software industry, and increasing the profitability of services. Avaya needs to change, according to Gartner, to better position itself in a telephony application market which is evolving away from standalone systems and toward functionality embedded in other enterprise applications and in broader communication portfolios. The firm has already taken steps in this direction through the purchase of software companies like Ubiquity Software, which it bought for US$144 million in January this year. “While software-based products promise better margins, this deal is not just about discarding time division multiplexing (TDM), it’s also about Avaya shedding its legacy image and culture and moving to a new generation of solutions,” Gartner added.

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