Consolidation Marks UC&C Space
Below the leaders Cisco and Microsoft, we're seeing a scramble among UC&C vendors the likes of which we haven't seen in years.
As I've been predicting for some time, we're in the midst of a wholesale upheaval in the UC&C space -- the latest evidence seen in the speculation around Genesys and potential acquisition targets: Interactive Intelligence, as reported yesterday by the Indianapolis Business Journal, or Avaya, as reported late last week by Reuters.
The big players like Cisco and Microsoft have secured their positions and are setting about their plans, but in the next level down we are seeing a scramble the likes of which we haven’t seen in years.
As far as this latest round of industry speculation goes, none of the companies are commenting publicly on any potential deals. But Avaya's contact center business is a core strength, and the company may be forced to sell off such key assets to address its $6 billion debt load (see related No Jitter post). Despite positive cash flow, Avaya is staggering under $400 million in annual interest expenses due largely to the debt it took on in its $8.2 billion leveraged buyout in 2007 by Silver Lake Partners and TPG Capital. If Avaya can’t come to an agreement with Genesys, talk is that it will potentially sell off other parts of the business in areas like network management or SMB.
Interactive faces its own challenges, namely growing net losses as the company transitions from an opex-oriented premises revenue model to the cloud's subscription-based capex model (see related No Jitter post). In Q1 2016, Interactive reported a $13.2 million net loss, which compares to $3.5 million net loss in Q1 2015. In Q2 2016, it reported a net loss of $10.2 million, which compares to $5.1 million net loss reported in Q2 a year ago.
For Genesys, news of this potential deal comes after last month's $900 million investment from buyout firm Hellman & Friedman. H&F is joining Permira and Technology Crossover Ventures as investors in Genesys.
Elsewhere, Mitel is busy playing the role of industry consolidator. Under the purview of CEO Rich McBee, it purchased prairieFyre Technologies and Aastra Technologies in 2013, contact center supplier OAISYS in 2014, and cellular software vendor Mavenir Systems in 2015. Its big move came a few months ago with the unsolicited $1.96 billion bid to buy Polycom, a deal it lost to Siris Capital Group and the $2 billion cash offer that private equity firm put on the table.
Clearly McBee and company aren't done yet... and there's a growing pool at UCStrategies trying to pick which company it might be going after next. Perhaps Mitel will even revisit its late 2014 run at ShoreTel. That company's board of directors rebuffed Mitel's offer, but the ShoreTel saga may not be over yet. ShoreTel is "forming a committee to evaluate 'a range of strategic alternatives' including a sale, divestments, joint ventures, restructuring, and partnerships," ZDNet reported late last week.
I fully expect this ongoing tumult will be one of the big subjects of discussion at the BC Summit, Nov. 1 to 3, in Palm Springs, Calif. Zig Serafin, Microsoft Corporate Vice President, Engineering, Skype for Business, will be among the keynoters, so we will be hearing from the big players. We will also be getting viewpoints from the communications platform-as-a-service, UCaaS, and carrier communities, with executives from Genband's Kandy, Tata Communications, and Vonage Business on tap.
All in all, we are seeing a wholesale shift taking place as the traditional PBX business morphs into the ever-changing UC&C and social collaboration markets. With that shift, the "strengths" of old are increasingly becoming the "baggage" of today. That realignment of priorities is creating significant new opportunities, and vendors are adjusting their strategies and their product portfolios so they have the appropriate mix of components in their arsenals to compete effectively in the next phase.