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Avaya IPO

As a former Avaya employee, I have been very curious to see how the firm has been doing since my departure in October of 2010.  Of course, since Avaya has been privately held since 2007, accessing financial reports has been difficult.

With Avaya's recently announced plan to raise $1B through an offering of shares to publicly traded markets came a release of financials.  Avaya's S-1 can be found at the Securities Exchange Commission website at the following URL.  http://sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001418100&owner=exclude&count=40

The data was quite revealing.  Avaya would like for us to focus on non GAAP figures, such as adjusted EBITDA, which paint a somewhat rosy financial picture.  I prefer a more fundamental analysis.  One does not require advanced education in finance to note that revenues have been declining steadily for the past five years (the recent uptick in revenue being attributed to accretive growth from the Nortel Enterprise acquisition). 

Furthermore, the company has not posted a profit since 2007, and has lost in the neighborhood of $1 Billion in three separate annual periods. All this while doling out some rather generous executive compensation ($15M for CEO Kevin Kennedy in 2009). 

The terms of the IPO have not been laid bare in the prospectus yet.  A diligent investor will note that when Avaya was purchased by private equity in 2007, the price tag was around $8.2 Billion.  The cost for the Nortel acquisition was just shy of another billion dollars ($915 million), so theoretically, assuming Private Equity has unlocked value, the company should certainly be worth in excess of $9.1 Billion.  This figure makes this investor wonder about the proposed $1 Billion public offering. 

Also worth noting is that the company plans to remain a "Controlled Entity" which absolves the company from allowing Director elections and other ballot initiatives.

Stay tuned as details are released.  This deal seems to have some interesting nuances.