After almost five years of unprofitable private ownership and nine months since it registered for a $1 billion IPO, Avaya, owned by private equity firms Silver Lake and TPG Capital LP, is sensing little appetite among potential investors, four sources familiar with the matter told Reuters.

Such feedback may prompt the company to hold off on the IPO until later this year or 2013, according to the sources, who asked not to be named because the discussions are private.

Avaya, Silver Lake and TPG declined to comment.

An IPO was expected by at least the first quarter of 2012, but the uncertain economic climate and choppy equity markets in the second half of last year scuppered preparations for such a launch.

Avaya is now stuck in an IPO backlog that is crowded with technology companies. These are fast-growing social media, software, and mobile platform startups that are a far cry from Avaya's mature telecom equipment business.

"You are seeing a renaissance of venture (capital) and levels of innovation, whether it is in mobility or cloud or security or social. Some of the companies that have gone public in the last six months have a couple of these elements and have done quite well," said Matthew Schuldt, a tech portfolio manager at Fidelity Investments.

Avaya is a low priority for technology IPO investors who are eagerly awaiting offerings from social networking site Facebook, security software maker Palo Alto Networks, machine data software company Splunk Inc, technology management software maker ServiceNow, human resources software provider Workday Inc and scores of similar companies, according to three of the sources.

Evan Bauman, a co-manager of the Legg Mason ClearBridge Aggressive Growth fund, said, "We're looking for more innovative-type growth with large addressable markets, i.e. flash memory which powers tablets and smartphones. These companies are beneficiaries of the growth of data and ways to access the data, more so than the new cycle of equipment might be for Avaya."

Avaya's IPO is in a "wait-and-see mode" at present, said one of the sources.

Although the company and its private equity owners remain committed to the process, two other sources said that a timeline has not been set due to market conditions.

Silver Lake and TPG originally purchased Avaya for $8.2 billion, but the public value of the company is expected to debut well below that figure, two of the sources said.

In its latest filing with the U.S. Securities and Exchange Commission, Avaya reported total debt of $6.2 billion and cash of $415 million for fiscal 2011. In fiscal 2008 it had debt of $5.2 billion and $594 million in cash.

As a result, Avaya's stockholders' equity deficit was $2.5 billion in 2011.

TECH CRUNCH

Despite the excitement associated with technology IPOs, private equity has not always found it easy to exit investments in the public markets because its companies often have too much debt and too little growth potential compared with newer, venture-capital-backed firms.

Last year chipmaker Freescale Semiconductor Holdings Ltd, which agreed to be bought in 2006 by a consortium that included Blackstone Group LP, Carlyle Group LP, TPG and Permira Advisers LLP, cut its offering to $783 million from more than $1 billion, reflecting weak investor demand.

The private equity firms had purchased Freescale for a hefty $17.6 billion, and then advertised it as one of the largest technology IPOs in history.

Similarly, in 2010 Dutch chipmaker NXP Semiconductors NV, one of the first of the large private equity-backed IPOs in the U.S. pipeline after the financial crisis, priced shares 30 percent below the expected range. NXP filed for an IPO worth up to $1.15 billion but ended up raising $476 million.

The marketing of NXP's IPO also encountered a setback when Deutsche Bank AG lost its underwriting slot because it refused to renew a $60 million line of credit for the chipmaker.

"If the economy is doing pretty well, or certainly better, it might also be the time to cut your losses if you are on the private equity side," Fidelity's Schuldt said.

"You may not make your money back or maybe it will be a long time if you ever do. It might be time to move your focus from past deals to investing in new assets since that is likely to generate higher returns."

COMPETITIVE STREAK

Avaya has paid top dollar for several acquisitions so it could remain competitive in the telecom equipment and networking sectors.

It counts Cisco Systems Inc, Microsoft Corp, Brocade Communications Systems Inc, NEC Corp, Huawei Technology Co and Siemens Enterprise Communications Group among its competitors. In March, New Jersey-based Avaya signed a deal to buy Israeli video conferencing company Radvision for $230 million. In 2009, Avaya paid $900 million during a competitive auction process for a unit of bankrupt Nortel Networks Corp that builds corporate networks. One of the sources said that Avaya had bought the Nortel assets to get some synergies and create additional value. "That has created some uplift and value," the source said.

Avaya also has a recognized brand name with thousands of patents and solid cash flow, unlike some fast-growing technology startups.

Its adjusted earnings before interest, tax, depreciation and amortization (EBITDA) were $971 million in the fiscal year ending September 30, 2011, up from $795 million in 2010.

"Some of these cloud companies will go out and they are small and they will get great valuations," said one technology investor who asked not to be named.

"Avaya is a real company generating good money," the investor said. "Whether they get great valuation, I don't know."

(Reporting by Nadia Damouni, Nicola Leske, Olivia Oran; Editing by Greg Roumeliotis)

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