Posts with tag Avaya,Inc.
Posted Jun 5th 2007 3:05PM by Peter Cohan
Filed under: Private equity industry
As I posted earlier, private equity has an appetite for chips, boxes, and wires. What will it buy next?
Before getting to that, it's worth pointing out that the notion of borrowing money to buy a high tech company is not that great. The reason is that high tech companies can quickly fall behind and lose market share if they don't come up with new products. And private equity does not usually like to invest in R&D. But if private equity buys a company with long-standing customer relationships, such concerns may be offset by the substantial cost reductions available.
Having said that, here's a list of potential candidates:
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Nortel Networks Corp. (NYSE:
NT). This network equipment supplier lost $103 million on $2.5 billion in sales in the first quarter of 2007. It also lost out on its bid to acquire
Avaya Inc. (NYSE:
AV). With a market capitalization of $11.4 billion, a 30% premium would make this $14.8 billion deal the biggest network equipment
LBO.
- Alcatel-Lucent (NYSE: ALU). This network equipment supplier lost $590 million on $12.3 billion in sales in 2006. With a market capitalization of $30.9 billion, a 30% premium would make this the biggest deal of the lot at $40.1 billion. Given the integration challenges between a U.S. and French firm and the enormous legacy costs, an LBO of this firm might be quite profitable.
- Juniper Networks Inc. (NASDAQ: JNPR). This network equipment supplier lost $1 billion on $2.3 billion in sales in 2006. With a market capitalization of $13.9 billion, a 30% premium would make this an $18 billion deal. Unlike NT, however, I think JNPR will resist the LBO route because it has not been around long enough to accumulate the kind of legacy problems NT has in spades.
What do you think of this list? What other candidates come to mind?
Peter Cohan is president of Peter S. Cohan & Associates, a management consulting and venture capital firm. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned in this post.
Posted Jun 5th 2007 11:58AM by Peter Cohan
Filed under: Deals, Texas Pacific Group, Silver Lake Partners
The trend of private equity firms buying out high tech companies continues. According to Bloomberg News, Silver Lake Partners and TPG will take Avaya Inc. (NYSE: AV) private for $8.2 billion -- the biggest LBO of a computer networking firm ever.
Investors will receive $17.50 a share. That's 4.7% more than yesterday's closing price and 28% more than before speculation about a purchase surfaced on May 29.
This is the latest in a string of high tech LBOs. Recent ones include:
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Acxiom Corp. (NASDAQ:
ACXM): This computer and database services provider said May 16 it's being bought by Silver Lake and ValueAct Capital Partners LP for about $2.24 billion.
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I am not sold on the competitive advantages that will result from this deal. Maybe there's some overhead to be cut but I question how much private equity is willing to invest in R&D to jump start Avaya's product pipeline.
Peter Cohan is president of Peter S. Cohan & Associates, a management consulting and venture capital firm. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned in this post.
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