Legendary private equity firm Kohlberg Kravis Roberts & Co. (KKR) likes to buy crusty old companies at low prices, repackage them, and, ideally, sell them for a higher price. This was the case with its latest deal, in which KKR announced that it is off-loading Tenovis for $635 million to Avaya
Like its competitors, Avaya came close to oblivion, but it has been able to turn things around, and the company has generated $350 million in operating cash flow for the first nine months of 2004. The firm is even returning to its M&A roots. For example, it recently plunked down $103 million in cash for Spectel, a teleconferencing business.
As for Tenovis, which is based in Frankfurt, Germany, it has the hallmarks of being a crusty company. After all, it was founded in 1899 as a telephone system rental business. Now the company is a leader in providing voice and data communications technologies, primarily in Europe.
The deal should pump up revenues by about $1 billion for Avaya. The deal will also be accretive by $0.07 per share in fiscal year 2006, although dilutive by $0.03 per share in fiscal year 2005.
So why should this acquisition enhance growth for Avaya? It's really about voice over Internet protocol (VoIP), which Nortel