Ericsson has agreed to buy the VoIP operator Vonage for USD 21 per share, for a total of USD 6.2 billion. The board of directors at Vonage approved the deal, which will enable Ericsson to expand its enterprise operations globally and build on its integration of Cradlepoint in September 2020. The merger price represents a premium of 28 percent to Vonage’s closing share price on 19 November and 34 percent to the volume-weighted average share price for the three months to 19 November.
Vonage’s presence in the Communication Platform as a Service (CPaaS) segment will provide Ericsson with access to a complementary and high-growth segment, the company said. The combination will also accelerate enterprise digitization and the development of advanced APIs made possible by 5G. Over the longer term, Ericsson intends to deliver services to the full ecosystem, including telecom operators, developers, and businesses, by creating a global platform for open network innovation, built on Ericsson and Vonage’s complementary solutions.
Vonage reported revenues for the 12 months to end September of USD 1.4 billion, with an adjusted EBITDA margin of 14 percent and free cash flow of USD 109 million. The cloud-based Vonage Communications Platform (VCP) serves over 120,000 customers and more than 1 million registered developers globally. VCP accounts for 80 percent of Vonage’s revenues and delivered revenue growth of over 20 percent in the three years to 2020, with adjusted EBITDA margins moving from to breakeven in the year to end-September from minus 19 percent in 2018. Vonage sees VCP continuing its annual growth of over 20 percent over the coming years.
The acquisition will be financed through Ericsson’s existing cash resources, which amounted to SEK 88 billion at end September on a gross basis, and SEK 56 billion on a net basis.
Ericsson expects near-term synergies from white-labelling and cross-selling to contribute USD 0.4 billion by 2025. The company also sees some cost efficiencies after completion. The deal should become accretive to EPS (excluding non-cash amortization impacts) and free cash flow before mergers and acquisitions from 2024 onwards.
Vonage has its headquarters in Holmdel, New Jersey, with 2,200 employees throughout the US, EMEA and APAC. The company’s employees will remain and Vonage CEO Rory Read will join the executive team at Ericsson, reporting to CEO Borje Ekholm. Vonage will at completion continue to operate under its name, reported as a separate segment in Ericsson accounts.
The deal is expected to close in the first half of next year.
