Ericsson to acquire Vonage for USD 6.2 billion.
- With the unanimous approval of the Vonage Board of Directors, Ericsson enters into an agreement to buy Vonage, a global provider of cloud-based communications, for USD 6.2 billion in cash.
- Ericsson’s goal to increase its footprint in wireless enterprise and widen its global services is exemplified by this acquisition.
- Vonage Communications Platform (VCP), which generates around 80% of Vonage’s total revenue and serves over one million registered developers globally, has a strong performance and growth outlook.
- From 2024 onwards, the transaction is estimated to be accretive to Ericsson’s EPS (excluding non-cash amortization effects) and free cash flow before M&A.
- The transaction is scheduled to close in the first half of 2022, subject to shareholder and regulatory approvals, as well as other usual circumstances.
NOV 22, 2021 – Ericsson (NASDAQ: ERIC) and Vonage Holdings Corp. (NASDAQ: VG) have agreed to buy each other for USD 21 per share. This equates to a total purchase price of around USD 6.2 billion (Enterprise Value).
Vonage’s Board of Directors unanimously approved the merger agreement. The deal furthers Ericsson’s declared intention to expand globally in a wireless enterprise, giving existing clients a bigger piece of a market expected to be worth USD 700 billion by 2030.
Börje Ekholm, President and CEO of Ericsson, says: “The core of our strategy is to build leading mobile networks through technology leadership. This provides the foundation to build an enterprise business. The acquisition of Vonage is the next step in delivering on that strategic priority. Vonage gives us a platform to help our customers monetize the investments in the network, benefitting developers and businesses. Imagine putting the power and capabilities of 5G, the biggest global innovation platform, at the fingertips of developers. Then back it with Vonage’s advanced capabilities, in a world of 8 billion connected devices. Today we are making that possible.”
“Today Network APIs are an established market for messaging, voice and video, but with a significant potential to capitalise on new 4G and 5G capabilities. Vonage’s strong developer ecosystem will get access to 4G and 5G network APIs, exposed in a simple and globally unified way. This will allow them to develop new innovative global offerings. Communication Service Providers will be able to better monetize their investments in network infrastructure by creating new API driven revenues. Finally, businesses will benefit from the 5G performance, impacting operational performance, and share in new value coming from applications on top of the network.”
Rory Read, CEO of Vonage, says: “Ericsson and Vonage have a shared ambition to accelerate our long-term growth strategy. The convergence of the internet, mobility, the cloud and powerful 5G networks are forming the digital transformation and intelligent communications wave, which is driving a secular change in the way businesses operate. The combination of our two companies offers exciting opportunities for customers, partners, developers and team members to capture this next wave.”
“We believe joining Ericsson is in the best interests of our shareholders and is a testament to Vonage’s leadership position in business cloud communications, our innovative product portfolio, and outstanding team.”
The acquisition builds on Ericsson’s success in integrating Cradlepoint in September 2020. Under Ericsson’s ownership, Cradlepoint has grown significantly.
Vonage, a global cloud-based communications company, has a proven track record of growth and profit expansion. Vonage had sales of USD 1.4 billion in the 12-month period ending September 30, 2021, with an adjusted EBITDA margin of 14 percent and free cash flow of USD 109 million.
Over 120,000 clients and over one million registered developers use the Vonage Communications Platform (VCP), which is hosted in the cloud. VCP’s API (Application Programming Interface) platform enables developers to integrate high-quality communications – such as messaging, voice, and video – into their apps and solutions without the need for back-end infrastructure or interfaces. As part of the Vonage Communications Platform, Vonage also offers Unified Communications as a Service (UCaaS) and Contact Center as a Service (CCaaS) solutions.
VCP generates around 80% of Vonage’s current sales and has delivered revenue growth of more than 20% in the three years leading up to 2020, with adjusted EBITDA margins improving from -19% in 2018 to break-even in the 12-month period ending September 30, 2021. VCP is expected to increase at a rate of over 20% annually in the next years, according to Vonage’s management team.
Ericsson will get access to a complimentary, sizable, and high-growth segment as a result of Vonage’s presence in the Communication Platform as a Service (CPaaS) segment. With increased expenditures in 4G and 5G networks, as well as a thriving ecosystem of innovative apps and use cases that use the power of modern networks, enterprise demand for programmable networks has risen. By providing API-enabled communications services, CPaaS solutions democratize network access. By 2025, the CPaaS industry is estimated to reach USD 22 billion, with a 30 percent annual growth rate.
Furthermore, Ericsson’s global leadership in 5G technology is expected to give the company access to the growing market for open network APIs, which is expected to reach at least USD 8 billion by the end of the decade and has a strong growth profile. With new and sophisticated global network APIs and access to Vonage’s unified communications and contact center solutions, CSP customers will be able to monetize their network investments, improve user experience, and stimulate further growth potential.
Vonage’s customer base and developer community, combined with Ericsson’s deep network experience, 26,000 R&D specialists, and global reach, provide chances to drive standalone strategy and innovation in the market. This involves advancing enterprise digitization and building sophisticated APIs enabled by 5G, putting the wireless network and communications power at the developer’s fingertips. Over wireless, such APIs can be used to assist maintain the quality of important services such as telemedicine, immersive virtual education, and autonomous vehicles, as well as provide experience performance improvements in gaming, augmented, and extended reality.
Ericsson to acquire Vonage for USD 6.2 billion.
Overview of the transaction
The acquisition will be conducted by means of a merger agreement through which Ericsson will acquire all of Vonage’s outstanding shares at an all-cash price of USD 21 per share. The merger consideration represents a premium of 28% to Vonage’s closing share price on 19 November 2021 of USD 16.37 per share, and a premium of 34% to the volume-weighted average share price over the 3 months to 19 November 2021 of USD 15.71 per share.
Ericsson’s existing cash resources, which totaled SEK 88 billion on a gross basis and SEK 56 billion on a net basis as of 30 September 2021, will be used to fund the transaction.
The deal is projected to generate near-term revenue synergies, such as white-labeling and cross-selling of the combined product portfolio, which is expected to generate USD 0.4 billion in revenue by 2025. Following the completion of the purchase, Ericsson expects to generate some cost savings.
From 2024 onwards, the acquisition should be accretive to EPS (excluding non-cash amortization impacts) and free cash flow before M&A.
Vonage will become a wholly-owned subsidiary of Ericsson upon completion and will continue to operate under its current brand. In Ericsson’s accounts, it will be reported as a separate segment. Vonage is based in Holmdel, New Jersey, and employs 2,200 people in the United States, Europe, and Asia-Pacific. Vonage’s workers will be retained, and Vonage CEO Rory Read will join Ericsson’s Executive Team, reporting to CEO Börje Ekholm. In July 2020, Read became the CEO of Vonage.
Completion of the transaction is subject to Vonage shareholder approval, regulatory approvals and other customary conditions and is expected within the first half of 2022.