Optimists among us were hoping that the fate of Nortel's Enterprise Solutions division and the rest of the bankrupt company's assets would be known this week. It appears that Nortel has decided to ask the court for more time, creating another delay in a story that is growing more uncomfortable everyday. The victims of Nortel's collapse are many, including its many long term employees who continue to work under a significant degree of stress, not knowing if they will have jobs following the restructuring.Enterprise Solutions can be a major prize to the smart bidder, because Nortel has been able to retain its market place position the past few years while the company's financials were crumbling. The rumor mill is hot and heavy, with two competitors prominent among the bidders: SEN Group and Avaya. SEN Group, formerly Siemens Enterprise Communications, is emerging out of its own two years of corporate hell. During the past few months, it has undergone a significant restructuring under its new CEO, Jim O'Neill. Morale at SEN Group has turned around and it is moving forward at a new brisk pace. Avaya, privately owned by Silver Lake Partners and TPG, has been able to hang on, if barely, its global telephony leadership position against Cisco and is embarking on its own Cisco-like go-to-market strategy. If either company acquires Nortel Enterprise Solutions it would be the largest global enterprise communications company based on revenues, assets, and installed base. This places the winning bidder in a unique position of strength in a very crowded competitive environment.
There appear to be more tangible reasons why SEN, as opposed to Avaya, would benefit from picking up Nortel Enterprise Solutions. SEN desperately needs to expand its indirect market coverage (a majority of its sales are through direct operations), especially in North America. SEN has been a relatively quiet player in the Federal Government sector, and Nortel's very strong presence in this sector would be a major revenue booster (O'Neill has significant experience in this sector, especially Defense). SEN has also been a minor player in the small systems market, a line size segment in which Nortel can claim to be the market leader. One thing going for SEN Group and its potential bid for Nortel Enterprise Solutions is that the company is debt free and has stated that it intends to grow through both large and small strategic acquisitions.
Avaya can also benefit, but in different ways. Combined with Nortel, Avaya would be the dominant North American competitor and the largest global competitor. It would be the same type of company, but much bigger. When competing against players like Cisco and Microsoft, this can be a good thing. Having the dominant installed customer base is invaluable when it becomes necessary to go into defensive mode should the need exist.
SEN had an informative global analyst web conference yesterday, and many expected it would include the announcement that the company had made a successful bid for Nortel Enterprise Solutions. The timing of the call was not coincidental. It appears, though, that there will be a need for future calls if such an announcement were to occur. I certainly know that I will be logging in when the time comes.
