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Oracle Sees Little Growth Potential in Avaya

Kevin Kennedy of Avaya

Reuters has reported this weekend that Avaya, a provider of telecom hardware/software for enterprises and contact centres, held buyout talks with Oracle earlier this year.

However, the talks are said to have “fizzled” in recent months.

Avaya was taken private by private equity firms TPG and Silver Lake for $8.4B in 2007 and reports that the company has been struggling to deal with market saturation, competition from the likes of Cisco and Microsoft, and an industry shift towards hosted/cloud-based telecom services.

Avaya reported revenue of $5.17 billion in its fiscal 2012, down 7 per cent compared to a year ago, while its earnings on an adjusted basis were flat, as the company struggled to maintain the appeal of its products in a highly competitive market. For the third fiscal quarter of 2013, revenue was $1.15 billion, down 8 per cent from the year ago.

Avaya has looked to acquisitions to boost growth. Its biggest under Silver Lake and TPG was the takeover of bankrupt Nortel Networks Corp’s enterprise solutions business for $933 million in 2009. Yet most of the improvements in the company’s profits have come from operational changes and cost savings.

In its third-quarter earnings call in August, its chief executive, Kevin Kennedy, said that the company’s gross margin percentage of 56 per cent was the highest for any quarter in Avaya’s history.

Reuters say that thanks to its P-E owners, Avaya had $6.1B in debt at the end of March ’13, and just $303M in cash. The company filed for an IPO back in 2011, but its plans have been on hold ever since.

Reuters comment that buying Avaya would dramatically expand Oracle’s enterprise hardware operations, which are contending with revenue declines of their own.

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