EX-99.3 5 ex993ccmaprocesscleansin.htm EXHIBIT 99.3 ex993ccmaprocesscleansin
© 2016 Avaya Inc. All rights reserved. 1 Avaya Confidential and Privileged – Prepared at the Direction of Counsel Project ArrowheadUpdate on Contact Center M&A Process [December 2016] DRAFT Subject to NDA


 
© 2016 Avaya Inc. All rights reserved. 2 Overview of Contact Center


 
© 2016 Avaya Inc. All rights reserved. 3 CONTACT CENTER OVERVIEW Contact Center Business Overview1 Leading Blue Chip Customers FY16 Standalone Contact Center Financial Detail1  Approx $1.3B revenue  64% gross margin  Over $460M adjusted EBITDA  36% EBITDA margin  100% Software and Services  Software that facilitates the operations of contact centers  ~12,800 customers  ~2,775 employees for standalone contact center business  60%+ recurring revenue — Upgrade advantage — Maintenance — APCS Contact Center FY16 Revenue Business Model1  Sell perpetual license software (~75% of product revenue)  Also sell subscription to new software upgrades called Upgrade Advantage (~25% of product revenue)  Maintenance attach ~20% of one-time product revenue  PS attach of ~55% of one-time product revenue  APCS: managed service to deploy UC and CC software applications in private cloud for customers 1 Source: Avaya Management. Standalone financials based on management’s view of bottoms-up cost build for standalone entity. Product32% APS13% Mtce31% APCS23%


 
© 2016 Avaya Inc. All rights reserved. 4 Overview of M&A Process


 
© 2016 Avaya Inc. All rights reserved. 5 OVERVIEW OF THE M&A PROCESS 34 PARTIES CONTACTED – PROCESS BECAME PUBLIC 20-MAY-2016 Contacted AttendedManagement Meeting Provided Perspectiveon Value Provided Written Bid Bid in Final Round 34 Total Parties 18 Total Parties 11Total Parties 8 Total Parties 2 Total Parties


 
© 2016 Avaya Inc. All rights reserved. 6 CD&R TRANSACTION TERMS PROPOSAL (PER MARKUP AS OF DEC-4) COUNTERPROPOSAL IN DISCUSSION WITH CD&R AND COUNSEL Terms Base Price  $3.9 billion Financing  $2.7 billion debt commitments (~6.5x)¹ subject to further due diligence. — Commitment from three banks of 100%, 50% and 100%, respectively  Equity capital from CD&R fund and unspecified direct co-investor(s).  Marketing period to begin after receipt of required information and satisfaction of certain conditions. Structure  U.S. asset sale (stock sale for tax purposes only); foreign asset and stock sale.  Certain assets/entities in foreign jurisdictions transferred at deferred closing(s).  All intercompany receivables, payables and agreements would be settled /terminated in full prior to closing. Purchase Price Adjustments  Purchase price to be reduced for assumed capital leases ($43 million). Purchase price to be reduced by the amount of assumed (non-U.S.) pension and end of service obligations that are required by law to be transferred ($17.4 million).  Purchase price subject to a one-way downward working capital adjustment with 10% collar; working capital target amount and components subject to further due diligence and negotiation.  Purchase price subject to a one-way downward EBITDA adjustment based on 9/30/16 audited “adjusted” EBITDA vs. 9/30/16 unaudited “reference” EBITDA (which remains to be confirmed) using a 9.35x multiple and subject to a 2% tipping basket/threshold and 10% cap.  Purchase price subject to increase for transferred cash up to a $25 million cap; treatment of excess cash open.  Purchase price not subject to increase for CD&R expense reimbursement. Key R&W and Covenants  Fundamental R&W with respect to organization and authority of Avaya and the transferred entities. Operational R&W with respect to certain financial information (i.e., special purpose unaudited financials, and, at closing, audited financials), title and sufficiency of assets, and intellectual property.  A rep with respect to minimum of $900 million NOLs delivered.  Broad financing cooperation covenants (3 years of audits and extensive unspecified pro forma information).  Remainco non-solicit and non-compete.  Employee and labor matters.  CD&R to potentially acquire or obtain long-term use of the Avaya name. Terms Termination Rights and Remedies  6 month drop dead date without extension for antitrust or CFIUS issues; parties to discuss extension of drop dead date or use of a bond escrow, in each case, at Avaya’s expense.  Mutual termination rights if the difference between 9/30/16 audited “adjusted” EBITDA and 9/30/16 unaudited “reference” EBITDA (which remains to be confirmed) exceeds or is below 10%.  CD&R may terminate if certain bankruptcy process/filing milestones are not achieved (including the approval of CD&R’s deal protections) or a DIP acceleration occurs and, in each case, receive a 3% break-up and expense reimbursement.  CD&R may terminate if certain to-be-specified financial metrics (e.g., bookings, revenue and EBITDA) are not achieved with respect to the (transferred) business or the Remainco business on a monthly basis and receive a 1% break-up fee plus expense reimbursement.  Avaya to deliver a letter of credit for 1.5% plus a to-be-specified amount in respect of expensereimbursement at signing to backstop CD&R’s deal protections until SAPA is approved.  Reverse termination fee of 3% payable by CD&R in the event of a financing failure. Indemnification  No R&W insurance.  Indemnification for breaches of reps and warranties, breaches of pre- and post-closing covenants, retained liabilities (including third party claims with respect to Avaya indebtedness and pensions), legal proceedings relating to the agreement or transactions contemplated by the agreement commenced by Avaya’s stockholders or creditors, conduct of the retained business, certain employee/benefits matters and certain tax matters.  18 month survival for operational representations and pre-closing covenants; 6 year survival for certain specified representations, plus title representations; statute of limitations plus 30 days for tax rep (other than the NOL rep assuming satisfactory completion of remaining due diligence) and tax indemnity.  $250,000 mini-basket (i.e., per claim threshold) applicable to non-”fundamental” rep breach claims only.  0.5% deductible applicable to non-”fundamental” rep breach claims only.  5.0% cap applicable to non-”fundamental” rep breach claims only.  Recoveries net of third party recoveries and adjusted for tax benefits and costs. Key Closing Conditions  Delivery of the audited financials and completion of marketing period. Receipt of requisite antitrust approvals.  A confirmed and effective plan of reorganization acceptable to CD&R.  Correctness of Avaya’s reps and warranties.  Avaya’s compliance with its interim covenants.  No material adverse effect since signing.  Completion of the Avaya internal restructuring.  Certain to-be-specified “mixed-use” contracts having been separated/assigned with counterparty consent.  CD&R having the right to appoint one director for Remainco by written agreement of all Remainco shareholders.  TSA services and related pricing to be revised between signing and closing, specifics TBD. ¹ Excludes revolving credit facility. Private and Confidential


 
© 2016 Avaya Inc. All rights reserved. 7 ESTIMATE OF NET ECONOMIC IMPACT TO AVAYA BASED ON CD&R LATEST BID ($ IN MILLIONS) Note: All figures and adjustments provided by CD&R, Avaya management, and KPMG. Summary assumptions underlying adjustment amounts: Capital Lease Adjustment based on balance of $42mm as of 9/30/16; Pension and EOS Obligations Adjustment based on balances as of 9/30/16; Transfer Taxes Adjustment based on expected 50/50 split of estimated $5mm Transfer Fee; Tax Leakage estimated at $107mm for CC; Advisor Fees from Avaya management; Pension & EOS Obligation Tax Benefit assumes that all future NewCo tax savings associated with Pension & EOS Obligations are transferred to RemainCo, and for the Net Economic Impact assumes that Avaya Inc could not have realized these savings.1 $5mm reflects amount already transferred by Avaya to CD&R; Avaya agreed to bi-weekly expense reimbursement. Assumes no working capital or audited EBITDA and/or Q2 FY2017 Revenue adjustments Transaction-RelatedCash AdjustmentsPurchase Price Adjustments Reversal of Cash Costs that Reduce Debt Agreed-Upon Purchase Price Adjustments (as of Nov-30) Potentially New Adjustments (since Nov-30) Other not quantified potential adjustments:  Any financing fees associated with a commitment period in excess of months or a bond escrow  CD&R’s antitrust filing fees and related expenses $ 3,900 $ 3,838 $ 3,694 $ 3,754 $ 3,736 $(42) $(17) $(3) $(107) $(40) $ 4 $ 42 $ 17 $(5) $(13) Purchase Price Capital LeaseAdjustment Pension & EOSObligationsAdjustment(Pre-Tax) Transfer TaxesAdjustment NetProceeds Tax Leakage Advisor Fees Pension & EOSObligation TaxBenefit Net CashYield Capital LeaseReduction Pension & EOSObligationsReduction NetEconomic Impacton RemainCo ExpenseReimbursement¹ 50% of R&WInsurance Cost NetEconomic Impacton RemainCo Preliminary estimate for additional of $5-$10mm costs for the biweekly expense reimbursement


 
© 2016 Avaya Inc. All rights reserved. 8 EXPECTED M&A TIMELINE TO CLOSE December January February March April Preparation of FY15 – FY16 Audited Financials Marketing Period(+/- 20 business days) Delivery of FY15 and FY16 Audited Financials Preparation of Q1 FY17 and FY16 Reviewed Financials Targeted Signing Date At or Before the 19th Targeted M&A Transaction Closing Illustrative Receipt of Confirmation Order


 
© 2016 Avaya Inc. All rights reserved. 9 Transition Services Agreement Overview


 
© 2016 Avaya Inc. All rights reserved. 10  Transition Service Agreements enable the Separation through temporary support for business continuity End StateDay 1 Operating Model (Includes TSAs)Pre-Deal Operating Model Avaya UC Products Segments Overview Contact Center Avaya Global Services Global Communication Solutions CC Supporting Functions AGS GCS Day 1 Handoff Supporting Functions Supporting Functions Supporting Functions Supporting Functions Supporting Functions Supporting Functions Supporting Functions Transition Service Agreements Management Office Key Considerations How does Avaya Inc. “disentangle” shared services? How does Avaya Inc. address separation costs? How does Avaya Inc. manage shared relationships with stakeholders? What TSAs does Unified Communications need to support the business? How does Networking build the capabilities to exit TSAs as planned? Contact Center (CC)Unified Communications (UC) TSA CONCEPT – UNDERSTANDING THE SEPARATION


 
© 2016 Avaya Inc. All rights reserved. 11 TSA area Description 2017 ($M) 2018 ($M) Total ($M) November Outlook • Cost estimated based on detailed schedule and resource requirements• Engagement of 17 different functional groups and SMEs across 4 areas• Extensive review cycle with suitors and functional teams• Advisory services engaged for TSA best practices• Day 1 outlook revised to FY17 Q3 40 54 94 Duration and Cost Scope TSA area Activity Area # Items Duration Product and Maintenance Product development, Customer support, and Systems access 10 12 Months Finance FP&A, Treasury, 3rd party services and IT systems access 5 12 Months Other: RE1, Ops, Mkt. HR, Legal, Sales Facilities access, OEFC, Supply Chain, Hiring systems, Tools access 15 12 Months IT IT Infrastructure, Applications and Support 25 18+ Months Total TSA (including IT) 55 12-18 Mos. TSA SCHEDULES & CONTRACTS Note:View as of November1. Real Estate TSA is dependent on lease end dates


 
© 2016 Avaya Inc. All rights reserved. 12 Overview of Interdependencies with RemainCo


 
© 2016 Avaya Inc. All rights reserved. 13 Source: Avaya ManagementNote: Revenue figures reflect FY16 revenue. Revenue figures for professional services and support services reflect revenue associated with CC portion only. Professional Services • Technical Consulting and Advisory Services • Testing and Optimization Services • Deployment and Program Management Support Services • Support Advantage • IP Office Support Services Team Engagement • Avaya Audio, Video, Web Conferencing • Avaya Communicator Clients –Desktop, Mobile, Web • Avaya Desktop, Wireless, Video and Multimedia phones • Avaya Multimedia Messaging • GSMB (German Small Business) Customer Engagement • Avaya Contact Center • Avaya Multichannel (Email, Web, SMS, Social) • Self Service • Proactive Outbound • Avaya Workforce Optimization • Integrated Reporting • Context Driven Analytics Networking • Fabric Networking • Top of Rack Switching • Wireless LAN 9100 • SDN Fx™ Architecture • Identity Engines • Pod Fx™ Full Stack Communications Enablers / Middleware • Avaya Breeze™ Platform• CC Snap-ins for Breeze™ • Snapp Store Marketplace• Zang Communications Platform as a Service • Avaya Aura® • Avaya IP Office™ Private Cloud Services • Communications Outsourcing Solutions • UC/CC, & Data Networking Managed Services CoreProduct Services EP&T Products and Services Included in Carve-Out CC Portion Included To be Licensed Perimeter Key • CS1K $412mm $6mm $304mm$405mm$186mm FY16 Revenues CONTACT CENTER CARVE-OUT PERIMETER VIEW


 
© 2016 Avaya Inc. All rights reserved. 14 Products, Services and Intellectual Property Avaya (Today) CC Co (Day 1) RemainCo (Day 1) Enterprise = Call Routing = Avaya Aura Call Center Elite+ Will Own IP Telephony = Avaya Aura Communications Manager Will License to CC Co (for a fee) for Contact Center Solution Enablement Midmarket = Call Routing = Avaya Aura IP Office Contact Center & Avaya Contact Center Select + Will Own IP Telephony = Avaya IP Office Will License to CC Co (for a fee) for Contact Center Solution Enablement EmergingTechnologies Breeze Application Development Platform Will Own & Will License to Remain Co Communications Platform as a Service Will Own & May License to Remain Co Avaya Private Cloud Services (APCS) Will Own APCS Business (UC, CC & Networking) Will Provide Required UC and NetworkingSupport Under TSA Agreement Professional Services (Deploy & Consulting) Will Own CC-related Services Business Will Own Non CC-related Services Business Emerging Products and Technologies Applications Development Team Will Own Emerging Technologies Applications Development Team CC-specific Patents (~ 350 US Granted and ~250 non-US Patents and Applications) Will Own & will License Relevant Patents to RemainCo Other Patents Relevant to CC Will License to CC Co for Contact Center Solution Enablement, Including Those Marked for Sale = Avaya Call Routing software is currently reliant on Avaya IP Telephony software PRO DUC TS SER VIC ES IP OVERVIEW OF INTERDEPENDENCIES WITH REMAINCO


 
© 2016 Avaya Inc. All rights reserved. 15 Avaya (Today) CC Co (Day 1) Split = Sales Coverage Gaps for Both Companies on Day 1 RemainCo (Day 1) - Accounts- Geographies Mutually Beneficial Arrangements and Cooperative Relationships Will be Put in Place to Ensure Customer Continuity and Opportunity Development, Based on the Following Guiding Principles (and Established in TSA) Both Companies Will Seek to Extract More Value from Services and Maintenance Any Mutual Representation Should Not Distort the Profit Profile of Either Company and Should Not Generate Conflicts or Account / Opportunity Leakage Customers, Partners and Go-To-Market CUS TOM ERS & PAR TNE RS Customer and Partner Contracts Are Currently a Mix of CC Co and RemainCo Elements • Co-mingled Agreements Will be Replicated / Partially Assigned (Majority of Contracts) • CC-specific Contracts Will be Assigned to CC Co (Minority of Contracts) ------------------------------------------------------------------- • Assignments Accomplished Under Terms of Assignment and Notice Provisions • Standard Terms Allow for Assignment of Contracts in Event of Acquisition GO -TO -MA RKE T OVERVIEW OF INTERDEPENDENCIES WITH REMAINCO (CONT’D)