Is Avaya entertaining private equity bidders? I have déjà vu

The definition of insanity is doing the same thing over and over again, but expecting different results.

It’s a handy quote for all occasions – whether or not you believe Albert Einstein ever really said it (spoiler: he did not). Just take our dearly beloved prime minister, Theresa May, and her repeated attempts to get her increasingly meaningless meaningful vote through Parliament.

So I was interested to see that my old friend A Source Familiar With The Situation has been on the blower to Reuters again, this time with a choice bit of goss about unified comms firm Avaya. Apparently it is giving serious consideration to an approach from an unnamed private equity firm that values it at $5bn.

Now, maybe I’ve been doing this for far too long, but have a vague sense of déjà vu here.

But this time it’s not just a funny feeling, or a glitch in the Matrix – it definitely happened.

The $8.3bn acquisition of Avaya in 2007 by private equity backers made waves at the time, but to put it charitably, Silver Lake and TPG did not run Avaya particularly well.

The firm was saddled with billions of dollars worth of debt and was allowed to massively over-reach itself through the ill-advised purchase of defunct Nortel’s core networking hardware business (although I have to confess I clearly didn’t think so at the time). Ultimately, it all proved a bit too much and Avaya was forced to declare bankruptcy in 2017.

Of course, there’s no certainty a deal will happen, but it’s not controversial by any means to observe that private equity companies do seem to be all too frequent common denominators in bankruptcies the world over (even Bloomberg, hardly a bastion of Marxist thought, is prepared to publish pieces hinting at this)

The entire private equity business model hinges on acquiring companies, generating massive efficiencies and streamlining operations (job cuts!), increasing margins and then selling them on. But for this to be successful you need market stability and that is something that has been in short supply for some time.

The last time Avaya was acquired in 2007, the US subprime mortgage crisis (that ultimately developed into a full-blown crash) was just beginning to bite, and the resulting recession was so severe that it is perfectly possible to argue we have still not quite recovered from it. Economic booms and economic busts go in cycles, and the next recession is now widely considered overdue.

Coming just 15 months after a revitalised Avaya emerged from bankruptcy protection as the direct result of its mismanagement in private hands, entertaining thoughts of inviting private equity back in…. Well, if that ain’t the definition of doing the same thing again but expecting different results…

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