Avaya to buy German IP telephony vendor

U.S. telecommunications equipment maker Avaya Inc. increased its presence in Europe to the tune of about US$635 million on Tuesday, agreeing to acquire German enterprise communications vendor Tenovis GmbH & Co. KG.

The deal will strengthen Avaya’s sales and service presence in Europe, especially in Germany, according to Lynn Newman, an Avaya spokeswoman. Tenovis will be integrated into Avaya, but no decision has been made on staffing levels or on the branding of Tenovis’ products, she said. Avaya will pay approximately US$370 million in cash and assume about US$265 million in debt. It will acquire Tenovis from affiliates of private equity firm Kohlberg Kravis Roberts & Co., according to a company statement.

After the companies are integrated, Avaya expects Tenovis to contribute about US$1 billion in annual revenue. The company expects the acquisition to benefit its earnings by $0.07 per share by fiscal year 2006, which will end Sept. 30, 2006. In Avaya’s 2005 fiscal year, which ends Sept. 30, 2005, the deal is expected to dilute the company’s earnings by US$0.08 per share, according to the statement.

Both companies play in the growing market for IP telephony, in which voice calls are converted to data packets and sent over a carrier data network or enterprise LAN. Tenovis provides enterprise communications systems and services for midsize companies and has about 200 customers throughout Europe, the Middle East and Africa, Newman said. The company has 5,400 employees in Europe, primarily in Germany. Avaya has approximately 15,000 employees worldwide but only about 1,700 in Europe, she said. After the acquisition, Avaya expects its European revenue to grow from 12 per cent to 30 per cent of its worldwide business.

The acquisition is subject to standard regulatory approvals and closing conditions, and Avaya will not project when the deal will close, Newman said.

Avaya, in Basking Ridge, New Jersey, was spun off from Lucent Technologies Inc. in 2000. Frankfurt-based Tenovis was founded in 1899 as a telephone system rental business, according to a company statement.

Tenovis offers a wide array of products including IP telephony, call centre and unified messaging systems, as well as managed services for planning, financing, provision and operation of information and communication technology, according to the company’s Web site.

Growth prospects for IP telephony are at least as good in Europe as in North America, according to Frank Dzubeck, president of consulting company Communications Network Architects Inc., in Washington, D.C. Avaya leads the world in call centre technology, which is being transformed by IP technology, he said. A greater presence in Europe will be a boost for Avaya, especially with the potential for IP call centres in Eastern Europe, Dzubeck said. Avaya in April agreed to buy a large stake in Tata Telecom Ltd., based in New Delhi, which gave the company a strong channel in the booming call centre industry in India, he said.

The company especially needs to expand its support organization to compete overseas, because IP call centres, which can be distributed across multiple locations, tend to require more employee training and support work, Dzubeck said.

“Avaya’s been pretty good with call centres … but with IP telephony, you need a much more significant presence,” Dzubeck said.

“The deal they made was extremely beneficial for them in terms of broadening their scope,” he said.

Avaya’s shares on the New York Stock Exchange closed at US$13.88 on Tuesday, down US$0.09, or 0.64 per cent, for the day.

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