Telecommunications company Avaya files for bankruptcy
reuters.com
reuters.com
I hope the pensioners and benefits obligations get paid the money they are owed ASAP, because this is a classic story of private equity (Silver and TPG) financially engineering a cash-siphon from a dying dinosaur and then "phoning it in" when it came to the manage out/re-price of new risk.
I don't have a problem with mega private equity and I can see some kool-aid drinkers saying "any acquisition made in October 2007 (the technical peak of the pre-crisis market) was going to have a tough time working out as played". But this was a deal designed to fail from the start.
Basically the private equity stunt here was: find a company that has $100, take $99 of it, use the company's last $1 to buy a lottery ticket, try to convince other investors that $1 ticket is a winner. They failed huge here.
Can you elaborate on this further? I just made a comment earlier about how Avaya ended up in this situation and I have had a feeling, based on how the last few years have played out, that you might be right: I just dont understand how the owners could have run the company the way they did and make out with a profit.
As for this deal. First it was 10+ years so feel free to call bullshit on my memory but it felt like amateur hours as if SL/TPG let their new MBA hires run it or people just screwed up when structuring the deal and unsurprisingly it's been a disaster ever since. Some examples of what I mean:
TL;DR buying a knowingly bad business, buying it at auction for a 28% premium, overloading it with clearly too much debt (even by risk-lovers standards), showing little commitment as owners to planning/doing the hands on operations work needed to fix/change/revive a mature obsolescing tech company, nor put in a management team that seemed serious about it either.
It appears SL/TPG saw the prospects for Avaya were weak and did the deal anyway[1]. In case you don't have access to WSJ, article talks about TPG viewing Avaya as a "buggy-whip business" at risk of being outmoded.
That's not so bad on its own. Obsolescing/dying "buggy-whip businesses" are just a reality of the business world. Such companies can still have value and potential. But what's odd is SL/TPG not only stayed in the deal but they bought in at a premium on auction. Meaning they had to fight against other buyers to win the deal and then they paid a premium of ~28% for it. OK guys...Auctions are a joke of a way to buy any business to begin with and such auction deals deserve the little to no respect they get in the PE industry.
(side note: This inevitable obsolescence in a business model is especially true in the tech space lately where the moment you launch a startup or introduce a new product the process of it becoming outdated has already started. All tech companies, big or bedroom, worry about keeping up with the next tech wave and there is no formula to avoid being a one-hit wonder. Of course some companies are able to hang on longer and stay big longer than others (ie "the by luck or by fuck clause" also known as the SV/DC two-step), but anyone who thinks the big FANGs of today will for sure be around in 10 years should read more tech industry history. Every tech business is dying just some faster than others).
As for the Avaya debt. LBO's need debt and debt is not necessarily bad when it comes to buying companies. The analogy for LBO debt is often that it's like buying a house. I guess in the Avaya case it's maybe like a house in Detroit. But if you have a $1MM and want to buy a house it may be better not to use the whole $1Million on the house. Put down $100k and take a $900k mortgage from a bank. Put your other $900k into other investments. At the end of it one should hopefully be better off vs. putting all your eggs in one basket. So while debt to buy companies can be a good idea in theory it doesn't always work out due to just chance and also because the investment industry has a small but news-worthy population of criminals and fucking idiots.
In the case of Avaya it was clear as day they used too much debt. Everyone could see it and there were journalists/articles where the high debt issue was brought up with Avaya management. I don't know if it was negligence or malice or what.
If things don't go well in an LBO and the company has to file for bankruptcy the bondholders lose. But that's not so bad, the bondholders should have known the risks of the investment going in and they were paid for that risk. Don't cry for them.
This reply has gotten long. I will add Kevin Kennedy has not done a good job as CEO...Avaya is spending money on soccer stadium names and has fake filed for IPO how many times then changed its mind? Also what really happened with Louis D'Ambrosio? He leaves suddenly due to medical reasons then went to be CEO of Sears a few years later. SL/TPG put Charles Giancarlo in as a replacement who lasted a year with them?
Lastly, Private Equity and LBOs have the potential to be good for companies and investors and employees. Businesses die and if someone sees a chance to make some money trying to revive it or wants to get paid to dismantle it, that's ok. But this should be done primum non nocere from day 1. This includes accurately telling employees and future investors of the risks of doing the turnaround and it should not be done with outstanding liabilities owned to employee pension plans. Frankly, in my personal opinion Avaya has been run so poorly over the last few years, with risks that did not make sense, that a crime with lapse of fiduciary duty may have occurred.
[1] http://www.wsj.com/articles/avaya-how-an-8-billion-tech-buyo...
So, presumably TPG lose what ever the initially put in now that it has hit the wall. Does that mean that they will have lost money over the course of the investment or would they have found a way to slowly extract money from the quite reasonable revenue that Avaya was generating over the last 10 years? Their only regret being that they werent able to offload the company before it hit the wall. With the mortgage/LBO analogy: when the bank repossess the home it is theirs to manage. By what process does the venture guys give up ownership and wash their hands of the day to day operations?
Since this was a leveraged buyout presumably the big loser here would be who ever holds the bonds that were created to fund the buyout and whatever else debt the company holds. Is there anyway to know who they are and why they thought it was a good idea to put their money into this? Are likely to end up owners of this company after the bankruptcy is resolved?
I guess the employees will take a large hit here, layoffs all round and whatnot.
The leadership members that were put in to run the place: do they typically take any kind of a hit in scenarios like this? It seems common knowledge that KK was getting paid serious compensation for his time but it looks like the only downside for him is that he didnt get the big bonus for selling off the company. Can we expect a clearout at the top or is this up to the new owners who result from the chapter 11 process.
As for info on where TPG and your debt holders stand, along with other details on what the hell is going on, it should be mostly publicly available. SEC's Edgar is where I would start to look and a multi-page google search session should find other stray legal documents.
Here is your Edgar page: https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&C...
Also here is a Bloomberg article from last year when the shit hit the fan while eating spicy food from a dirty foodtruck, the article has some names of who owned the debt and who represents them and what your bonds were trading at (even back then it was already 28 cents on the dollar, Oy)
https://www.bloomberg.com/news/articles/2016-06-08/avaya-sai...
I don't know nor can I predict if there will be large layoffs. You work there, so hopefully you know.
It should not "seem like common knowledge" how much KK is getting paid, it should be common knowledge, this is publicly available information. Click on that Edgar link above, the info is in there. Look at the 10-K forms the company filed they disclose executive compensation.
Other questions like what will happen to leadership or how will ownership of the company change or what assets may need to be sold, this is all part of the Chapter 11 process.
Unfortunately, and despite popular opinion, people on Wall St cannot predict the future ;). I don't know why CNBC and WSJ keep asking investors and economists what they think will happen, these shmuks have no fucking clue. So my apologies, but I just don't know how this will play out. But Chapter 11 is quite a public process so you can follow it as it happens.
If you are unfamiliar with how Chapter 11 works, the Planet Money radio show/podcast did a story on Ch.11 that was pretty good. Here it is: http://www.npr.org/sections/money/2015/09/05/437628996/episo...
One more thing on the winners and losers. Sometimes a company can go down and there are no big winners or big losers. Not by how I would define a loser here. I am sure TPG and Avaya bondholders wished things had turned out better on this investment. But they made an active investment decision, in a risky company, as part of a diversified portfolio of multiple bets similar (well hopefully). The portfolio overall also hopefully isn't losing money even when one of the deals turns out to be a dud. Companies can go down even when giving a 100% honest effort to improve it. Look at VCs and startups, some/most startups in the VC's portfolio inevitably fail, are these companies and their VCs losers? If people are fully informed on the risk and rewards, and nothing was taken away, then the founders, employees and investors knew they were taking a risk when they signed up.
My main concern when I read news stories like this is if people were lied to, or misled or company directors & officers did not act in good faith while making decisions when running the company. Being dumb still not a crime on its own. But if a company's D&O put their employees pensions on the line while enriching themselves, or if management mislead employees and small investors about the health of the company/their efforts to fix the company's problems while really planning their own exit behind the scenes - that's fucking disgusting and it may be a crime (and if it was a crime send their asses to jail plus a lawsuit to clawback their BS gains).
I don't know how this will play out but if I worked there I would for sure be looking for another job asap as part of the uncertainty of who, what, where over the next few weeks in Ch.11. Good luck.
Admittedly this opinion of mine is based on propaganda from the 2008 election cycle . If it's fundamentally flawed, I'd appreciate if someone would take the time to CMV.
>"The Santa Clara, California-based company has been burdened by debt stemming from an $8.2 billion buyout in 2007 by private equity firms Silver Lake Partners LP and TPG Capital LP, with $600 million coming due in October. Interest expense of more than $400 million a year has been pushing Avaya into losses."
This simplistic analysis however ignores that before the buyout the company might have been a prosperous self-sustaining entity fully capitalized by common stock with little debt. That common stock, made into a small percentage of the capital structure by the buyout, is often wiped out too in the event of bankruptcy - indeed it is usually at the bottom of the totem pole in that capital structure. So although they may no longer be majority owners, bankruptcy is typically an unhappy event for long-time stockholders of the company such as founders, employees holding company stock in their 401ks, etc.
Perversely this is the kind of company PE outfits typically go after - in their worldview it is a waste of leveraging potential not to apply debt to such a company. I recommend reading "Barbarians at the Gate" if you are interested in this topic.
I started a company (shameless plug: fifthsignal.com) that makes software to fix a lot of the inefficiencies we saw. One of our biggest concerns was whether or not other carriers operated as poorly as what we had experienced. After talking with several carriers outside of the US, it would seem that most are actually worse off.
I believe someone in this thread made a comment towards the "legacy" telco space. Based on my experience, I would say it's a "dinosaur" industry that has seen very little delivered innovation in recent times.
*Most of my experience relates to operations/OSS solutions, with very little insight into telco BSS space.
I would advise anyone working at a company acquired by private equity to bail out ASAP. It is just a matter of time before you get screwed. Especially don't get left with a bunch of company stock.
I do wonder why creditors keep funding these PE deals and why anyone participates in their share offerings. You're asking to get taken.
https://foragerfunds.com/bristlemouth/dick-smith-is-the-grea...
I did not have to go any further, owning the Avaya was game over and got some pats on the back from my employer and the clients. I had prepared a quite extensive plan of action, been my first gig I had to show. The laptop was loaded of tools, even some "cool" exploits but at the end it all came down to a few nmap scans and a google query. I felt dissapointed. Also, after the pen test I spent some (very) boring weeks documenting, inventorying, and documenting again. It made me reconsider how deep I wanted to dive into security audits.
If I'm wrong, they sure as hell spent a lot of time leading me to believe I'm right.
"my assumption every time I have tried to look them up is that they are locked down and difficult to integrate with."
Yep exactly this. We are working on a project where we have to integrate with Avaya. It is a nightmare and ancient technology. Why would a company spend tons of $ when you have just as good software in open source world (free switch)
At the previous tech company I worked at, we used Avaya VOIP phones (5000+ employees). The phones could be used at home (with a remote access point - RAP - plugged into your router). One thing that always impressed me was just how clear, crisp, and low-latency the audio was for VOIP. I'd pick up the handset and the dial-tone was immediately there; while on conference calls, I could easily interject comments (whereas with Skype, there is always an annoying delay). While working at this company, I would literally bring this big ol' corporate deskphone with my while traveling (e.g. south america, London, etc), and it was great having a perfect call connection anywhere there is decent internet.
My question is - for those folks who work remotely 100% (or often): Have you found a VOIP phone solution that really works well for you? I bough an Ooma handset, and I'm sorry to say that the audio is still clouded, muffled, and has latency. Plus, the handset (the home/residential one) just feels... flaky. Without having much experience with other VOIP phone systems, I'm really looking for a solid corporate desk phone (handset, but also very clear remote headset) - it's got to be as good as an in-office phone, interface with POTS, and also be portable for travel. I do a lot of consulting, and am on phone calls sometimes 4-5+ hours a day, so it'd be great to have a comfortable powerful solution that can handle this.
Would love to hear anyone's thoughts and experience on this. My Ooma purchase was an bit of a costly experiment...
Granted, things have improved a lot over the last 10 years, both in cell phones and internet calling. However, video conferencing still seems pretty obsessed with figuring out a way to get high definition video and both audio quality (from the connection and the equipment) and latency haven't improved significantly for major video conferencing solutions.
Later on, as CDMA phones grew in popularity, the multiplexing grew and the bandwidth shrank. Also codecs got more efficient by flattening the audio. All the atmosphere is stripped from the audio and voice calls got very sterile.
VoLTE has been rolling out (slowly) over the past few years, but has hit a human-based stumbling block. People now expect background noise on phone calls, and may mistake its absence for a signal that the call has been dropped.
>> it was great having a perfect call connection anywhere there is decent internet.
Thats the catch. The internet service has to be good enough for VoIP. Many times, having the right router is key.
>> I'd pick up the handset and the dial-tone was immediately there;
As long as the handset thinks its registered, dial tone will be immediate.
As far as the Ooma experience goes, if you can change the codecs for your device to use something like G722 rather than the normal PCMU/PCMA or GSM, call quality should be good. What handset did you get for your Ooma service ?
Regarding Ooma, I have the portable handset here: http://www.ooma.com/telo/
And I bought the headset (which connects to the base station as another phone, rather TO the phone. The process to simply dial a number and use the headset is comically complicated to "join" the calls...)
If you have any specific advice for this setup, I'd be appreciative. Likewise, if you have other recommendations for solutions, I'm all ears. Thanks again!
Ultimately, the quality mostly depends on who is running the voip system. I have a fancy pants Cisco phone on my desk with a premium headset that combined costs as much as a nice laptop. But it sounds like a turd, because our network folks want to save precious bandwidth. The phone itself can do HD audio and all sorts of fancy things.
The headset is easy -- just spend more. Find a Jabra or Polycom that integrates with your phones hook and volume controls. Good ones are $200. The one I have has ridiculously long range and good sound.
In a previous life I got a close-up view of Carlyle attempting this with a former Verizon business, only to discover that Verizon can put short pants on crooked business execs. That office tower was stacked to the ceilings with deadwood. Equal parts fascinating and horrifying.
This phrase interests me - what does it mean? Like they can dress them down, or make them look foolish?
FreePBX for Linux (https://www.freepbx.org/) or MizuSwitch for Windows (https://www.mizu-voip.com/Software/VoIPServer/FreeSoftswitch...) are very good free alternatives which can be managed also by non-technical people with zero telecom experience. And there are a good support and a lot of modules for both which can be purchased on low cost, not comparable to Avaya pricing.
I think the bigger shift is that people don't need desk phones anymore. The move to mobile is killing the need for fancy PBX gear in business.
We had a server through which the conversation (SIP, converted from landlines) went, and enabled the agent to interact with the call through either a web page, or hitting keys on their phone. Transfers, blind or not, holds, recordings, assistance, we could handle all of it. To dumb phones. Literally things that weren't able to display the time of day.
Mobile is doing diddly squat, frankly. Same as softphones. The voice quality over wi-fi is terrible, and what's the point of using a mobile device if it needs to be plugged in anyway. Softphones never took off because call centres couldn't reuse their headphone equipment, and having a headphone's "pick up" button work on a softphone was impossible, at scale. It also meant that actually interacting with the call was tricky (change focus of the window to find the numpad, then either click on digits, or type on the keyboard).
One major game changer, however, seems to be WebRTC. A lot of companies are investing big on it (see Dixa and COLT for example).
I really think this is a generational problem. Callcentres of old want the highly integrated hardware. Train your people once, and then they can become robots. New, modern places want the ability to switch providers. They want their agents to be close to the customer, and even closer to the tracking/reporting software stack, without going through 10 layers of proprietary integration.
WebRTC also means that you can simply talk to the person on your website, while you see what they see, and can walk them through whatever they need.
Fortunately, because it was open source, we now have SipXecs. Last I worked with it (5 years ago), I'd be comfortable implementing it for a client with less than 1500 users and no complex contact centre. I imagine it is much more capable now. I still recommend it.
I have experience with Asterisk and the Mizu VoIP softswitch only. Asterisk is quite limited on capacity, but that mizu server can handle 10000 simultaneous calls on a cheap Xeon server (full B2B calls with billing and RTP proxy and all the PBX stuff such as IVR, voicemail, conference).
This capacity is enough for a whole smaller country and these kind of software solutions can be easily scaled.
Of course, you can buy the same capacity 100x more expensive from a hardware vendor.
There are though, operations that require scale or functionality that either doesn't exist, or isn't quite bulletproof in the open source world.
SS7 connectivity, geographically spread call centers, priority queuing based on multiple concurrent data sources, drag-drop complex IVR software, natural language parsing, natural language generation, contextual screen pops with hooks to caller information, and so forth.
Some of those are available in open source, yes. Not necessarily proven at scale, easy to integrate, etc.
Of course, Avaya filing for bankruptcy hints that there aren't many customers that need this sort of stuff anymore. Either the support function is shifting to chat/email, or they are using SaaS vs their own equipment.
Often people think that these hardware based products offers better quality but I often seen the opposite.
Of course our dude might leave the industry someday. Then we might have to hire a different dude.
I'm absolutely positive Asterisk is better than Toshiba in that regard. I've invented some absolutely hideous hacks to get Toshiba systems do complicated call flow. But for a minuscule office with less than 8 phones, say a chiropractor or hand made guitar manufacturer, Toshiba does the basics, does it well, and is much easier to install. The systems don't do much, but they do it well. The pbx can hang in a damp and dirty location for years and still work. Internet service here is too unreliable to have a hosting solution or sip trunks, unless you want to pay AT&T thousands a month. The wiring can be 50 year old 25 pair, and the phones work fine. Businesses don't want to switch to ip phones since they don't have the cabling infrastructure for it.
Are you kidding me?
I run my own PBX (would count as a SMB from a user/call count perspective). It doesn't run on any open source software, because all FOSS PBXes I looked at where ridiculously hard to configure. FreePBX is a great example there.
Anyhow, I mainly looked into AskoziaPBX and Vodia after that.
Askozia terminated their "diet" version and costs 250+ € (only one variant is offered).
Vodia has a free version (5 extensions, which is exactly enough), and has a more granular licensing scheme. I didn't fully setup Askozia testing, but it looked quite nice. Vodia was also reasonably easy to configure (about 1-2 days initial setup and after a couple weeks I got all the kinks fixed).