Barely a month after emerging from Chapter 11, Avaya has returned to the M&A market with the purchase of Spoken Communications in what could be the first of several acquisitions as the company aims to transition its business into a cloud-delivery model. A recently restructured debt load gives Avaya an extra $300m in annual cash flow to put toward M&A, product development and other strategic initiatives to reverse a years-long decline in revenue.
Spoken doesn’t get Avaya into a lot of new product categories. Most of the call-center software that the target sells, Avaya already offers in some form, including interactive voice response and automated call distribution. Instead, Spoken brings a cloud-deployment model with lower costs and the potential for embedded intelligence. The deal, Avaya’s first since mid-2015, follows the creation of a dedicated cloud business unit last month.
With Spoken, it has a meaningful product to place into that unit and a platform for further acquisitions that could include forays into fraud detection and conversational artificial intelligence (i.e., chat bots). The deal helps shore up its contact-center business – the more stable portion of Avaya. Revenue in Avaya’s contact-center business – $1.2bn last fiscal year – has been basically flat for the past three years. Unified communications, on the other hand, has been eviscerated, having dropped by almost one-third over the past three years.
We’d expect Avaya to seek a similar cloud platform purchase for that unified communications business, as it’s in danger of continuing a rapid descent as organizations shift their internal communications to SaaS and other cloud models. According to 451 Research’s Voice of the Enterprise: Cloud Transformation, Workloads and Key Projects, 76% of email and collaborative workloads will reside in the cloud by 2019, up from 55% last year.
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