Telecoms equipment giant Avaya Inc. have just filed for Chapter 11 bankruptcy following months of trying to stabilise their financial instabilities.
Avaya has been carrying a huge debt burden of about $6.3 billion.
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 and TPG Capital. Interest being charged at more than $400 million a year has been pushing the company into substantial losses.
Reuters have reported that Avaya will not be selling off its Call Centre business which they had recently attempted to sell to buyout firm Clayton, Dubilier & Rice LLC for around $4bn. In addition, their foreign affiliates are not included in the filing.
2016 was not a good year for Avaya, their revenues recently dropped to $958 million in Q4 2016 from $1bn in Q4 2015, which in turn resulted in a net loss for the business of $750 for the year.
Avaya’s largest creditors included two Texas based firms, Wistron Infocomm Technology America and Avnet. Both being owed $8.8 million each. Well known Hewlett Packard Enterprise was owed $5.5 million, Verint Americas was owed $4.3 million and well-known Salesforce.com was owed $4.1 million.
At September 2016, Avaya owed its pensioners $1.7 billion.
Avaya CEO, Kevin Kennedy said:
“We have conducted an extensive review of alternatives to address Avaya’s capital structure, and we believe pursuing a restructuring through Chapter 11 is the best path forward at this time.”
What does this mean for Avaya resellers and customers?
Avaya is a huge firm and this has the potential to seriously rock the market. Avaya for years have been one of the top 3 traditional PBX vendors globally boasting more than 300,000 customers worldwide. Not to mention contained in this number is 3.1 million unified communications seats and 500k contact centre agents.
Many customers will today feel a little uncertain, especially the ones that have recently invested large amounts of money and contracted directly with Avaya on long term contracts. We’re pretty sure these contracts will continue to be honoured in some way, but it will create huge uncertainty for organisations which have been promised longevity from their Avaya communications solution.
For resellers its again a period of uncertainty. After years of flying the Avaya flag and investing each year in training staff on Avaya products, it might be time to change to an alternative brand unless Avaya can reassure its partners there is a future together.
In the UK there are approximately 70 Avaya resellers, many of which sell the Avaya Contact Center solution. Although this division is not being sold off customers will inevitably challenge resellers on the feasibility of investing in an Avaya solution.
It’s a sad day for the Comms community, Avaya’s employees, partners and customers. Post your comments below.
What is Chapter 11?
Chapter 11 is a form of bankruptcy that involves the reorganisation of a company’s affairs, debts and assets. Named after the U.S. bankruptcy code 11, Chapter 11 is generally filed by corporations that require time to restructure their debts, and it gives the company (debtor) a fresh start, subject to the debtor’s fulfilment of his obligations under the plan of reorganisation.
As the most complex of all bankruptcy cases and generally the most expensive, a company should consider Chapter 11 reorganisation only after careful analysis and exploration of all other alternatives.
The story so far:
- Avaya Files a Plan with Bankruptcy Court
- Avaya Slammed for Bankruptcy Bonus Plans
- Avaya Update: After Chapter 11 What will Happen to Avaya in the UK?
- Avaya Seeks $3.7 Million for Executive Bonuses During Bankruptcy
- Avaya Networking Sell Off Approved By Bankruptcy Court
- Avaya Could Emerge From Bankruptcy By Summer
- Could Avaya’s Debt be Too Much to Handle?
- Avaya enters Chapter 11 – a very sad day in Comms