As we head into the dog days of August, it increasingly looks like the last order of business before summer holidays at Alcatel-Lucent will be disposition of its enterprise business unit. Much as a purchase by HP, posited by me in April, might have made for an interesting combination, it appears the winds of change are strongly favoring a private equity buyout.
Like Avaya, Siemens and Nortel before them, it seems only private equity firms have an appetite for taking on a large legacy installed base. They see opportunity. More so in Europe than in the US, companies have postponed the inevitable move to IP/SIP enterprise telephony solutions. These laggards now find themselves in a position where rising maintenance costs and an inability to economically add new features (e.g., mobility and video) will compel them to act.
So why didn't another enterprise telephony vendor, say Cisco, snap up Alcatel-Lucent Enterprise and move all those customers to a new platform? For one, Cisco has been steadily gaining market share in this space for ten years; they don't have to buy share. Second, buying the base implies creating often complex, multi-year migration scenarios (think Avaya/Nortel) for the existing customers. Cisco has often been able to get companies to forklift-upgrade with just modest enticements (e.g., competitive buyback offers).
A private equity company seriously considering the purchase of ALU Enterprise might believe that the roadmap ALU-E has put together will not only be compelling to existing customers but will be able to gain share from others players. This would seem to have been the rationale of Silver Lake/TPG and The Gores Group.
But given the lack of success to date of these private equity ventures into enterprise telephony, perhaps Permira, rumored to be the leading contender among buyers, has another strategy in mind. An article quotes the managing director of a small private equity firm: "The industry has a sort of PR campaign going that says we're good for companies. We present ourselves as a hope for troubled companies, someone they can turn to. That's all well and good, and it's often true, but we're there to find value and make money. Period."
Will Permira (or some other private equity company) be willing to do what Alcatel-Lucent seems unwilling to do, break-up the ALU-E components and sell them off separately? Even if a deal is announced this week, it may be years before this story completely plays out.
