Ericsson to acquire Vonage for $6.2 billion to expand cloud business

Swedish telecom equipment maker Ericsson has agreed to acquire Vonage, a global provider of cloud-based communications, for $6.2 billion in cash to spearhead, what the compay said, the creation of a global network and communication platform for open innovation.

The acquisition underlines Ericsson strategy to expand its presence in wireless enterprise and broaden its global offerings.
Vonage has seen robust performance and growth prospects on the back of Vonage Communications Platform (VCP), which delivers about 80 per cent of its total revenues and, serves more than one million registered developers globally.
The board of directors of Vonage has unanimously approved the merger agreement. The transaction builds on Ericsson’s stated intent to expand globally in wireless enterprise, offering existing customers an increased share of a market valued at $700 billion by 2030.
“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 monetise 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.” Börje Ekholm, president and CEO of Ericsson, said.
“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,” Rory Read, CEO of Vonage, said.
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.
Vonage, a global provider of cloud-based communications, has a strong track record of growth and margin evolution. Sales were $1.4 billion in the 12-month period to 30 September 2021, and over the same period, Vonage delivered an adjusted EBITDA margin of 14 per cent 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.
VCP accounts for approximately 80 per cent of Vonage’s current revenues and delivered revenue growth in excess of 20 per cent in the three-year period to 2020, with adjusted EBITDA margins moving from -19 per cent in 2018 to break-even in the 12-month period to 30 September 2021. Vonage’s management team projects annual growth of over 20 per cent for VCP in the coming years.
Ericsson will benefit from Vonage’s presence in the Communication Platform as a Service (CPaaS) segment, providing it 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. 
The deal is expected to close in the first half of 2022, subject to Vonage shareholder approval, regulatory approvals, and other customary conditions.
The transaction would be accretive to Ericsson’s EPS (excluding non-cash amortisation impacts) and free cash flow before M&A from 2024 onwards.