Avaya has filed for chapter 11 bankruptcy, which it hopes to exit within 90 days.
Chapter 11 bankruptcy allows businesses to reorganize their debts and repay creditors while keeping their operations running.
Do not confuse such a filing with chapter seven bankruptcy: liquidation.
Instead, the move gives Avaya breathing space as it right-sizes to its revenues – which dropped by over 36 percent last quarter (YoY) – and repays its substantial debts.
Before this filing, these debts stood at $3.4BN. Now, they will fall to $800M, due in 2028.
The move will also free up $600M, giving Avaya considerable liquidity to press ahead with its innovation plans – which it shared with CX Today in December.
Yet, the voluntary, pre-packaged filing will have many more consequences for the stalwart contact center vendor.
Avaya Will Become a Private Company
After the restructure, Avaya will become a private business, having already removed itself from the New York Stock Exchange.
The move may benefit Avaya, as it avoids some of the financial scrutinies it has endured over the past 12 months. This has allowed its competitors – including NICE – to sow seeds of doubt into its customer’s minds about its future reliability.
Indeed, these vendors and several other industry onlookers have pushed speculation that this is the beginning of the end for Avaya.
Now, it doesn’t seem this way. As Alan Masarek, CEO of Avaya, stated:
With this additional financial strength, we will be ideally positioned to accelerate innovation and advance our cutting-edge, long-range product roadmaps for the benefit of our customers.
Yet, it is perhaps the last chance saloon – with Avaya previously filing for bankruptcy in 2017.
As such, the vendor must execute on its future roadmap. This will be the trickiest part of Masarek’s plan to forge a path back to growth – which Avaya aims to do by 2025.
The plan also includes simplifying Avaya’s organizational and reporting structure, right-sizing expenses to its revenue, and revitalizing its culture.
Good News for Lenders, But Some Employees Will Have Questions
90 percent of Avaya’s secured lenders have supported the restructuring support agreement (RSA), which underpins its chapter 11 filing.
Thanks to this support, Avaya expects to complete its restructuring process within three months.
What convinced these lenders? Now, they will receive a percentage stake in the business that mirrors the percentage of the debt they held.
So, if a lender controlled ten percent of Avaya’s debt, it now owns ten percent of Avaya.
As a result, if Avaya is ever acquired or undergoes a financial transaction – like an IPO – they will get their just rewards.
Yet, while this result may satisfy these lenders, it is not so good for shareholders – many of whom are likely Avaya employees.
After all, employees may have received stock options as rewards or been part of a purchase plan. As such, a significant chunk of their savings will bite the dust unless Avaya decides to compensate these through bonuses.
Of course, many will be happy to keep their jobs. Yet, Avaya may expect a little pushback here.
A New Team Will Take the Reigns at Avaya
Alongside its financial restructuring, Avaya will also reshuffle its board, with only its CEO – Alan Masarek – keeping his place at the top table.
Such moves seemingly underline Avaya’s change in strategy as it pivots further toward the CCaaS space in the hope of retaining much of its impressive client roster.
Still, this includes 90 percent of Fortune 100 companies, and these customers have remained surprisingly loyal to the vendor, despite its mismanagement.
However, with new contact center entrants circling, keeping these customers’ promises to be a tricky task. Yet, such clients likely have specialist requirements – across public and private clouds – which few of its competitors currently support.
As such, starting them off on a hybrid cloud migration journey – with Masarek’s “innovation without disruption” vision – appears critical to Avaya’s future.
Avaya Will Work More Closely with RingCentral
Alongside the filing, Avaya also announced that it has strengthened its partnership with RingCentral.
The initial premise of the deal was to pave a path for Avaya customers to move to RingCentral. As such, Avaya effectively acts as RingCentral’s agent.
Yet, the vendors also seem to sense an opportunity to combine RingCentral with Avaya Cloud Office and its endpoints to win business.
Alluding to this, Vlad Shmunis, Founder, Chairman & CEO of RingCentral, stated:
As part of its recapitalization, Avaya is emerging stronger and better positioned to migrate the world’s largest on-premises installed base to Avaya Cloud Office by RingCentral, the best UCaaS destination for every Avaya Unified Communications customer.
The new deal hinges on such use cases, allowing Avaya to act as a wholesale distributor, owning customer relationships, and splitting the lifetime value of each contract.
As such, when a customer renews, Avaya also earns some of that revenue.
Avaya Is Not Out of the Woods Yet
Deals of this nature – and the restructure – may give Avaya a much-needed boost. However, the vendor is not out of the woods yet, as it also fights several legal battles.
Indeed, only last week, Avaya was accused of “massive fraud” in a bondholder lawsuit.
So, while the news may give the business a much-need boost, the road ahead for Avaya is likely to have many more twists and turns.
