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June 1, 2017
martinwolf  Transaction Analysis
Extreme Networks to Acquire Avaya

Financial Information*
  • Enterprise Value                           $100M
  • EV/LTM Revenue                         N/A
  • EV/LTM EBITDA                          N/A 
Transaction Facts
  • Following its original offer on March 7, Extreme Networks (Nasdaq: EXTR) announced yesterday that it has won the bid to acquire Avaya Inc.'s fabric-based secure networking solutions and network security solutions business, Avaya, for $100M. In accordance with the terms and conditions of the asset purchase agreement, the final agreement is expected to close on or after July 1, 2017, subject to customary closing conditions and regulatory approvals. 
  • Extreme anticipates the transaction will be accretive to cash flow and earnings for its fiscal year 2018 beginning on July 1, and expects to generate over $200M in annualized revenue from the acquired networking assets from Avaya. 
Adapting to a Changing Landscape
  • Shopping Spree: Founded in 1996, Extreme is the number three player in the enterprise data networking market behind Cisco and HPE and is the only pure-play networking provider. While Extreme has traditionally served the middle-tier, it has been strategically increasing its number of acquisitions in order to gain a bigger share of the larger scale enterprise market.
  • End-to-End: In March, Extreme entered into an agreement to purchase Brocade Communications Systems, Inc.'s data center networking business from Broadcom for $55M, including $35M in cash on close of the deal and $20M in deferred payments over a five-year period; the deal is expected to close this August. Last October, Extreme completed the acquisition of Zebra Technology's wireless LAN business for $55M, giving Extreme a wireless LAN presence. The company recently reported the complete integration of Zebra's technology and a boost of wireless partners as a result.
  • Higher Visibility: While Extreme Networks has traditionally focused on core enterprise networking technology, the Zebra acquisition gave Extreme a wireless LAN presence. Seeking to complete its end-to-end reach in a single combined platform within the next year, the Avaya acquisition would bring deployment simplicity, micro-segmentation and fabric technology with embedded security, while the Brocade portfolio would bring high-end data center networking along with visibility and automation.
  • Competitive Advantage: "With the consolidation of these companies, our position will only be strengthened against Cisco and HP," said Extreme CEO Ed Meyercord, who plans to double the size of its partner program. Regarding his competition, Meyercord said, "We're seeing HP becoming more commodity-like which opens doors for us to become more specialized for enterprise customers."
  • Clear Exit: The U.S. Bankruptcy Court cleared Avaya's sale on May 25. The company filed a Chapter 11 reorganization plan to reduce Avaya's pre-filing debt by more than $4B. In January, when it declared Chapter 11, Avaya reported $3.6B in revenue for the year ending in September 30, 2016, down 9% from the previous year. 
For more information about this transaction,  click here to read the press release.

martinwolf was not the advisor in this transaction.

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With offices in the San Francisco Bay Area and New York, martinwolf is a leading M&A Advisory focused on middle market companies in the IT Services, IT Supply Chain, IT-Enabled Business Process Outsourcing and Software as a Service (SaaS) space. Since 1997, our team has completed more than 150 transactions in over 20 countries and sold seven divisions of Fortune 500 companies. 

 

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