Ericsson has entered into an agreement to acquire Vonage, a global provider of cloud-based communications and has a strong track record of growth and margin evolution.
The deal was agreed for $21 per share. This represents a total acquisition price of approximately $6.2 billion (enterprise value).
The merger agreement was approved unanimously by the board of Vonage. The transaction builds upon Ericsson’s stated intent to expand globally in wireless enterprise, offering existing customers an increased share of a market valued at USD 700 billion by 2030.
Vonage sales were $1.4 billion in the 12-month period to 30 September 2021, and over the same period, it delivered an adjusted EBITDA margin of 14% and free cash flow of $109 million.
The cloud-based Vonage Communications Platform (VCP) serves over 120,000 customers and more than one million registered developers globally. The API (Application Programming Interface) platform within VCP allows developers to embed high-quality communications – including messaging, voice and video – into applications and products, without back-end infrastructure or interfaces.
Vonage also provides Unified Communications as a Service (UCaaS) and Contact Center as a Service (CCaaS) solutions as part of the Vonage Communications Platform.
Borje Ekholm, President and CEO of Ericsson, said: “The core of our strategy is to build 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 monetise the investments in the network, benefitting developers and businesses. Imagine putting the power and capabilities of 5G 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 monetise their investments in network infrastructure by creating new API driven revenues.”
Rory Read, CEO of Vonage, added: “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.”
For Ericsson, the acquisition builds on the success of the integration of Cradlepoint in September 2020. Cradlepoint has continued to develop strongly under Ericsson’s ownership.
VCP accounts for approximately 80% of Vonage’s current revenues and delivered revenue growth in excess of 20% in the three-year period to 2020, with adjusted EBITDA margins moving from -19% in 2018 to break-even in the 12-month period to 30 September 2021. Vonage’s management team projects annual growth of over 20% for VCP in the coming years.
Vonage’s presence in the Communication Platform as a Service (CPaaS) segment will provide Ericsson with an opportunity to access a complementary, substantial and high growth segment. With increasing investments in 4G and 5G – and a flourishing ecosystem of new applications and use cases leveraging the power of modern networks – demand from enterprises for programmable networks has been accelerating. CPaaS technologies democratise network access by offering API-enabled communications services.
The CPaaS market is expected to reach $22 billion by 2025, growing at 30% annually. In addition, Ericsson’s global leadership in 5G technology is expected to provide access to the developing space for open network APIs, which is expected to reach at least $8 billion by the end of the decade with a strong growth profile.
The combination of Vonage’s customer base and developer community and Ericsson’s deep network expertise, 26,000 R&D specialists and global reach creates opportunities to accelerate standalone strategies and innovation in the market.
Vonage is headquartered in Holmdel, New Jersey in the United States with 2,200 employees throughout the United States, EMEA and APAC. Vonage’s employees will remain with the company and CEO Read will join the Executive Team of Ericsson, reporting to President and CEO Ekholm.
