Ericsson Looks To Buy Vonage for $6.2B
November 22, 2021
Ericsson has entered into an agreement to acquire Vonage for USD 21 per share.
This represents a total acquisition price of approximately USD 6.2 billion
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.
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.”
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 and the Vonage Communications Platform (VCP)
Vonage, a global provider of cloud-based communications, has a strong track
record of growth and margin evolution. Sales were USD 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% and free cash flow of USD 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% 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.
Ericsson and Vonage – creating a winning combination
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 democratize network access by offering API
enabled communications services. The CPaaS market is expected to reach USD 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 USD 8 billion
by the end of the decade with a strong growth profile. CSP customers will also
benefit from monetizing their network investments, optimizing the user
experience and stimulating additional growth opportunities with new and advanced
global network APIs and access to Vonage’s unified communications and contact
The combination of Vonage’s customer base and developer community and Ericsson’s
deep network expertise, 26,000 R&D specialists and global reach create
opportunities to accelerate standalone strategies and innovation in the market.
This includes accelerating enterprise digitalization and developing advanced
APIs made possible by 5G; putting the power of the wireless network and
communications at the finger-tips of the developer. Such APIs can be applied to
help ensure the quality of critical services like telemedicine, immersive
virtual education and autonomous vehicles as well as experiential performance
benefits in gaming, augmented and extended reality, over wireless.
In the longer term, Ericsson intends to offer value benefits to the full
ecosystem – telecom operators, developers, and businesses – by creating a global
platform for open network innovation, built on Ericsson and Vonage’s
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.
The acquisition will be financed through Ericsson’s existing cash resources,
which amounted to SEK 88 billion as of 30 September 2021 on a gross basis, and
SEK 56 billion on a net basis as of the same date.
The transaction is expected to deliver near-term revenue synergy opportunities,
including white-labelling and cross-selling of the combined product portfolio
estimated to contribute USD 0.4 billion. by 2025. Ericsson also expects to
achieve some cost efficiencies following completion of the transaction.
The transaction is expected to be accretive to EPS (excluding non-cash
amortization impacts) and free cash flow before M&A from 2024 onwards.
completion, Vonage will become a wholly owned subsidiary of Ericsson and will
continue to operate under its existing name. It will be reported as a separate
segment in Ericsson accounts. 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 the Vonage CEO Rory
Read will join the Executive Team of Ericsson, reporting to CEO, Börje Ekholm.
Read joined Vonage as CEO in July 2020. With more than three decades’ global
technology industry experience, Read was previously Chief Operating Executive
for Dell Technologies and before that, CEO of Advanced Micro Devices (AMD).
Ericsson remains fully committed to previously communicated financial targets,
including long-term EBITA margins of 15-18%; long term FCF before M&A of 9-12%
of sales; and a 2022 target EBIT margin of 12-14% for Ericsson Group excluding
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.