I recently received the following analysis from someone in the industry who requested anonymity. I think it's a pretty cogent, straightforward analysis that you can agree or disagree with, but it's intellectually honest. So I'm passing it on here:
The Avaya-Nortel deal is a bad idea. A really bad idea.
Before I present the case for this position, here's my disclaimer: This post is my opinion and no one else's. In addition, I'm not a current or former Nortel or Avaya employee, customer, analyst, subcontractor, or stockholder. I have no affiliations with Avaya or Nortel other than being a part of their Consultant Programs. I have no particular ax to grind or hidden agenda. Really. OK, with that out of the way let's try to rationally frame Avaya's proposed acquisition of Nortel's Enterprise Solutions.
There are numerous studies on mergers and acquisitions (with emphasis on "acquisitions") and the generally accepted conclusion is that the failure rate for these deals is roughly 66%. That is, two-thirds of M&A fail to create any value, or actually destroy value. Based on the research, the odds of the Avaya-Nortel deal being a "winner" are not good.
If you need more evidence, consider these other deals: Rolm-IBM, Alcatel-Lucent, AT&T-NCR, EBay-Skype, AOL-Time Warner, Daimler-Chrysler, MCI-WorldCom, Sprint-Nextel, BofA-Countrywide. Believe me, the list is a lot longer.
Consider Professor Robert Halthausen, Accounting Professor at Wharton's School of Business, who estimates the M&A failure rate is somewhere between 50%-80%. In his 2005 article titled, "Why So Many Mergers Fail," Halthausen cites the following reasons why mergers fail:
* Companies overpaid and have too much leverage--crushed by debt & then the bloodletting begins
* Poor strategic and tactical planning--once the deal is done, the executives can't decide what to do next (call it "the Iraq problem")
Cultural clashes--Geeks-Suits, Europeans-Americans, Data heads-Bell heads
* Lack of objective and realistic thinking--the acquiring CEO loves the idea and must have the deal no matter what the facts say
* Strategically ill-conceived--even when the entire industry doesn't see the value, somehow the buyer knows something everyone else doesn't
* The buyer forgets it's really acquiring people
The last point is key. The Avaya-Nortel deal is not so much about the perceived technology or organizational "synergies" that Avaya may (or may not) gain. It's not about what product lines will go or stay (ACE vs. Aura). While not trivial, it's more than expanding market share or global footprint with Nortel's embedded base.
The Avaya-Nortel deal is really about bringing together very talented people quickly (my worry is that many of the really good people may already be gone) to create something unique which offers genuine value to customers looking for communications technologies, services, and support. The deal and its ability to succeed is ultimately about employees, customers, channel partners, and suppliers. It is about making the deal happen with speed, minimal debt, and minimal impact to these key groups of people.
Given these requirements for a successful acquisition, I don't believe there is any way Avaya will get the people or speed questions right. Absolutely no way.
Look, I believe Avaya has very good and in some cases outstanding technology. They have many wonderfully talented people and are genuinely working hard to improve their "go to market" strategy. Avaya is absolutely a major global communications player and even more so when it comes to contact centers.
But I also believe they just don't have the resources, expertise, experience, or stamina to pull off the Nortel merger. We're talking about Avaya, a company so burdened by debt that they apparently are furloughing their sales people this year for two weeks. Their sales people, for heaven's sake.
We're talking the Avaya that still hasn't been able to get their channel business running on all cylinders after 8 years. How in the heck will Avaya be able to integrate Nortel's channel into theirs with any kind of speed and agility? Just look how long it's taken them to get their messaging portfolio together after the Octel deal in 1997.... No, I can't see how they're going to handle the Nortel deal without screwing up the people "stuff."
Who should acquire Nortel then? In my opinion, not Avaya, Siemens or any other telecom manufacturer that has a competing product portfolio and channel.
I have an idea of who should--without naming names, I can tell you the profile of the "company" that has the best chance of pulling it off. The acquiring firm needs to be a private equity group with leadership who knows the communications business, has an intimate understanding of Nortel Enterprise, genuinely knows the people side of technology, and can quickly convince customers that it makes good sense to once again buy Nortel products and services. That's who should get the prize when it's all said and done.
Before I present the case for this position, here's my disclaimer: This post is my opinion and no one else's. In addition, I'm not a current or former Nortel or Avaya employee, customer, analyst, subcontractor, or stockholder. I have no affiliations with Avaya or Nortel other than being a part of their Consultant Programs. I have no particular ax to grind or hidden agenda. Really. OK, with that out of the way let's try to rationally frame Avaya's proposed acquisition of Nortel's Enterprise Solutions.
There are numerous studies on mergers and acquisitions (with emphasis on "acquisitions") and the generally accepted conclusion is that the failure rate for these deals is roughly 66%. That is, two-thirds of M&A fail to create any value, or actually destroy value. Based on the research, the odds of the Avaya-Nortel deal being a "winner" are not good.
If you need more evidence, consider these other deals: Rolm-IBM, Alcatel-Lucent, AT&T-NCR, EBay-Skype, AOL-Time Warner, Daimler-Chrysler, MCI-WorldCom, Sprint-Nextel, BofA-Countrywide. Believe me, the list is a lot longer.
Consider Professor Robert Halthausen, Accounting Professor at Wharton's School of Business, who estimates the M&A failure rate is somewhere between 50%-80%. In his 2005 article titled, "Why So Many Mergers Fail," Halthausen cites the following reasons why mergers fail:
* Companies overpaid and have too much leverage--crushed by debt & then the bloodletting begins
* Poor strategic and tactical planning--once the deal is done, the executives can't decide what to do next (call it "the Iraq problem")
Cultural clashes--Geeks-Suits, Europeans-Americans, Data heads-Bell heads
* Lack of objective and realistic thinking--the acquiring CEO loves the idea and must have the deal no matter what the facts say
* Strategically ill-conceived--even when the entire industry doesn't see the value, somehow the buyer knows something everyone else doesn't
* The buyer forgets it's really acquiring people
The last point is key. The Avaya-Nortel deal is not so much about the perceived technology or organizational "synergies" that Avaya may (or may not) gain. It's not about what product lines will go or stay (ACE vs. Aura). While not trivial, it's more than expanding market share or global footprint with Nortel's embedded base.
The Avaya-Nortel deal is really about bringing together very talented people quickly (my worry is that many of the really good people may already be gone) to create something unique which offers genuine value to customers looking for communications technologies, services, and support. The deal and its ability to succeed is ultimately about employees, customers, channel partners, and suppliers. It is about making the deal happen with speed, minimal debt, and minimal impact to these key groups of people.
Given these requirements for a successful acquisition, I don't believe there is any way Avaya will get the people or speed questions right. Absolutely no way.
Look, I believe Avaya has very good and in some cases outstanding technology. They have many wonderfully talented people and are genuinely working hard to improve their "go to market" strategy. Avaya is absolutely a major global communications player and even more so when it comes to contact centers.
But I also believe they just don't have the resources, expertise, experience, or stamina to pull off the Nortel merger. We're talking about Avaya, a company so burdened by debt that they apparently are furloughing their sales people this year for two weeks. Their sales people, for heaven's sake.
We're talking the Avaya that still hasn't been able to get their channel business running on all cylinders after 8 years. How in the heck will Avaya be able to integrate Nortel's channel into theirs with any kind of speed and agility? Just look how long it's taken them to get their messaging portfolio together after the Octel deal in 1997.... No, I can't see how they're going to handle the Nortel deal without screwing up the people "stuff."
Who should acquire Nortel then? In my opinion, not Avaya, Siemens or any other telecom manufacturer that has a competing product portfolio and channel.
I have an idea of who should--without naming names, I can tell you the profile of the "company" that has the best chance of pulling it off. The acquiring firm needs to be a private equity group with leadership who knows the communications business, has an intimate understanding of Nortel Enterprise, genuinely knows the people side of technology, and can quickly convince customers that it makes good sense to once again buy Nortel products and services. That's who should get the prize when it's all said and done.
