Should Nortel VARs Mull M&A? One Avaya-Nortel Shop Says Yes

Xeta CEO Greg Forrest said there are a lot of Nortel VARs out there that would benefit more from joining forces than to transition fully into the Avaya Connect channel program -- a process that's proven slow and deliberate for many Nortel VARs that, due to Nortel's 2009 bankruptcy, already have dealt with a year of turmoil.

Along those lines, Broken Arrow, Okla.-based Xeta this week unveiled a deal to acquire Pyramid Communications Services, also an Avaya-Nortel dealer. According to Xeta, the transaction is expected to close during its third fiscal quarter and, when completed, will expand Xeta's presence all over the Midwest and the Mountain time zone.

Carrollton, Texas-based Pyramid Technologies operates in eight states and closed 2009 with revenue above $10 million, according to Xeta.

Along with Avaya and Nortel, the two VARs also have common practices in Hewlett-Packard, Microsoft, Juniper Networks and Polycom. Pyramid Technologies will bring a number of new vendors to Xeta's stable as well, including ShoreTel, LifeSize Communications, Meru Networks and Extreme Networks.

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"This is a scale acquisition, meaning it's something that looks like us, vs. a scope acquisition, which would be for a technology," Forrest explained. "Their operations are similar, and they have been a very strong competitor of ours in this region. Culturally, they're very similar to us, and when we began to look at it, we saw a lot of 'yes' boxes checked. We've been talking to them for a number of years and now was just the right time for their ownership to think about a new strategy."

"By leveraging Xeta's national service footprint and broad technical competencies, we can immediately expand our offerings to current customers and will be better positioned to grow with existing and new ones," said Wade Griffin, Pyramid Technologies CEO and co-founder, in a statement earlier this week.

Acquisitions have served Xeta well in the past. An Avaya Connect Platinum Partner and legacy Avaya shop, Xeta in 2004 bought Bluejack Systems, a Nortel VAR, which more or less kick-started its existing Nortel practice.

Forrest said the company has no plans to stop at Pyramid Technologies and will keep its M&A efforts chugging along. The opportunities are not only existing, but abundant, he said.

"We're in a position to expand our business and our first targets are the Nortel targets," Forrest said. "We're in a position to be proactive. I mean, there's a perfect storm happening with Avaya and Nortel coming together. The industry needs consolidation to happen and Avaya needs it, too. They don't have the bandwidth to manage the two channels the way they are now."

Strategic partnering and acquisitions on the part of partners -- which was a predicted side effect of Avaya's purchase of Nortel's enterprise unit last fall -- will help Avaya ease some of the transition, Forrest contended.

"Think of it this way: The Nortel channel partners had been built specifically to compete with Avaya for a long time, and not only that, but they competed with channel partners and competed with Avaya on their direct side," he said. "We need Avaya to succeed here -- they clearly are in a position to be the leading relevant logo in this communications space."

Plenty of Nortel VARs will make a successful transition to Avaya Connect, and many already have. But there are also longtime Nortel VARs, Forrest said, that would rather offer their experience and competencies to peers in need of them than jump through Avaya procedural hoops.

"You're talking about guys that have had businesses for 20 to 25 years, and they're being asked to reinvest in their competencies," Forrest said. "It's expensive to train your guys, but you're also asking legacy Nortel partners to both reinvest and adopt different methods of doing business, as Avaya is evolving more toward a software-centric model."