ALU’s Silent Auction

by Dave Michels

Lots of conversation this week about the possibility that Alcatel-Lucent intends to sell its enterprise business unit. I have a few thoughts on the matter.

  • To my knowledge, no one at ALU has actually publically stated ALU Enterprise is for sale. A MarketWatch report that said “Alcatel-Lucent is in the early stages of contacting a wide range of possible buyers for the business.” If anyone actually wanted the division, I’m sure ALU was contacted anytime over the past few years. However, the number of logical buyers are finite, and it won’t take long to call each CEO.
  • The bigger issue at hand is why would ALU want to sell the business? ALU sells to carriers and enterprises, but wants to just sell to carriers. The company was formed as a merger between … you guessed it, Alcatel and Lucent. This is one of those mergers where 2 + 2 = 3. That’s putting it nicely. MarketWatch wrote: “The merged company has been unprofitable every year, and by 2008 its market capitalization had shriveled to approximately $6 billion, from a premerger level of $36 billion.”
  • As an added bonus, the prospective acquirer will get to deal with a company currently based in France, the home of massive employee protections – even when they threaten with bombs.
  • Most conversations consider ALU intending to sell its enterprise division as industry consolidation. One potential candidate to acquire the division that is being bandied about is HP. That would not be industry consolidation, that would be Hide the Sausage. We should declare this industry consolidation if and only if an existing player acquires the firm.
  • HP isn’t a bad idea, the voice industry and the IT industry are “converging” and among the Unified Communications vendor list we see HPs competitors such as IBM, Cisco, (Google), and (Oracle). HP is certainly plausible, but buying a struggling European voice player doesn’t seem like a smart way to beat the crap out of Cisco. I think HP might have better ideas. Though there could be merit to obtaining IP as HP did with 3Com. If there are patents of value, expect Google to be interested. 
  • Of the major players, a better fit would be Cisco. I see some reasonable strengths to this deal. ALU’s jewel is Genesys – and Cisco wants more contact centers, and Cisco could use stronger Euro presence. Plus the Cisco VP of UC Laurent Philonenko came from Genesys. The problem with Cisco is it seems more inclined lately to shut down business units than acquire them. Although one thing Cisco is good at is acquisitions – and an acquisition of this size is not easy – there are few companies that could really pull it off. ALU customers may be saying this Xmas:  “A Cius for the rest of us.” 
  • Another name that comes up is Microsoft. But I don’t see Microsoft doing this at all. Not only does it simply not fit, but Microsoft has gotten pretty good lately at buying companies without paying for them – (Nokia and Yahoo). It is possible ALU would be happy to give it to Microsoft, but I just don’t see that in the tea leaves. But for the record, my history of seeing things in tea leaves is pretty much limited to tea leaves.
  • Then there is Avaya. Avaya is walking pretty tall because it pulled off the Nortel merger pushing them back to number one after Cisco outsold Avaya and stole the title. Two very important lessons here: 1) Avaya pulled off a significant merger despite a clash in cultures and 2) Avaya found buying market-share is easier than selling stuff. The LU part of ALU came from the AT&T; monopoly as did Avaya. In the Avaya Nortel deal we had 2 +2 = 5, both Avaya and Nortel were hemorrhaging, but together they are stronger. Add in another weak link and they may be unstoppable. Aura is positioned now as the seamless way to integrate anything and everything into a conversation. Dragging Genesys into the Avaya spotlight just might add some needed flare to their business.
  • There are a few smaller players that could benefit from ALU’s enterprise focus, namely ShoreTel which is working hard to expand internationally. NEC and Mitel still seem  occupied with their last acquisitions. But I think ALU Enterprise is out of all of their reach.
  • IBM? IBM can’t do voice.
  • Aastra: Strong possibility. They picked up Ericsson before so already have a strong Euro presence. They are a fairly acquisitive company. However, they seem pleased with their own contact center solutions and don’t strike me as a company that needs more platforms right now. A reasonable fit if the price is right. 
  • Siemens Enterprise is a strong fit. 1) SEN is much stronger in Euro than NA. 2) As identified by Dan Miller at Opus, Gores/SEN undoubtedly saw the success of Avaya and Nortel and probably wants an acquisition to boost its size. 3) SEN needs a way to be more relevant in the application space and Genesys fits nicely.4) Such an acquisition has strength in Europe (as does SEN), but will drag North American expansion. 5) SEN has a broad enterprise focus now – switches, wireless, voice – ALU wants to keep the boring carrier stuff. 6) Both companies have some shared philosophies – particularly around social networking and dislike of the market leaders.  6) ALU (in both short and long form) is a crappy name – as is Siemens-Enterprise – strengthens need for rebranding campaign. 

An acquisition of ALU enterprise will be mostly driven by fit as described above, but in the end, it boils down to price. ALU is losing money and that invites bargain hunters – and ALU Enterprise can fit into any firm if the price is right. On the other hand, fit means everything if it’s a stock deal.
If It is cash then Cisco wins (who wants their stock anyway), and if it is a stock deal SEN wins. If it is not cash or stock, it is an IPO.
Admittedly, I am shooting from the hip here largely because I pay little attention to the contact center market. Too crowded and too dull – oh, that’s what ALU said.