initial public offerings (IPOs) trading on American exchanges

Friday, June 10, 2011

Avaya files for $1 billion IPO

Avaya, the US telecoms technology group, has filed for a $1bn initial public offering, returning it to public markets after four years of private ownership.

The maker of business communications hardware and software will be an interesting test case for investors, who have rushed to buy fast-growing web technology groups, but have shied away from large, economically sensitive firms that sell tech to industry.

Avaya generated $5.06bn in sales in its last fiscal year, ending in September, a jump of 21 per cent from the previous year. It narrowed its net losses from $420m in 2009 to $381m last year.

Since being taken private in 2007, Avaya’s management led by Kevin Kennedy, chief executive, has focused on developing sophisticated “unified communications” software and desktop systems.

Gartner, the market research company, ranks Avaya as a leader in the corporate telephony, contact centre and unified communications markets.

The company consolidated its position in these markets in September 2009 when it outbid Siemens Enterprise Communications and paid $915m to acquire Nortel Enterprise Solutions business after Nortel filed for Chapter 11 bankruptcy.

With net debt of $5.7bn, against earnings before interest, taxes, depreciation and amortisation of $795m, adjusted for compensation and one-time expenses, the company is leveraged at a ratio of about seven times.

The group plans to use the IPO proceeds to pay down debt, as well as buy out equity contributed by Silver Lake and TPG to its acquisition of the Nortel unit.

For the firms to turn a profit on the sale, the shares would need to sell at more than the $17.50 paid in 2007. The share price target for the deal was not disclosed in the initial filing in New York.

Hardware technology IPOs have seen mixed success this year. In May, Freescale Semiconductor, a private equity owned group that provides computer chips to autos, had to lower its offering price to come to market.

By contrast, an offering for Fusion-io, a venture-capital backed group, which uses flash memory to expand “cloud” data centre, priced above its range in an IPO this week.

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