Ericsson (ERICb.ST) agreed to buy cloud communications business Vonage (VG.O) in an all-cash deal worth $6.2 billion on Monday, as the telecom gear maker expands its 5G portfolio.
The acquisition follows Ericsson’s $1.1 billion purchase of Cradlepoint last year, which provided it with capabilities for connecting devices utilizing the so-called Internet of Things across a 4G or 5G network.
Vonage, based in the United States, creates Application Programming Interfaces (APIs) that allow different products to connect with one another.
Ericsson will pay $21 for each outstanding Vonage share, a 28% premium to Friday’s closing price and a 34% premium to the average of the last 3 months, price analysts said was high.
Ericsson shares fell 3.8% in early trade, on track for their worst day since July and the worst performer on the pan-European STOXX 600 index (.STOXX).
Vonage, which operates across sectors such as healthcare, finance, education, and transportation, had sales of $1.4 billion in the 12-month period to Sept. 30, 2021, with a margin on adjusted earnings before interest, tax, and depreciation of 14% and free cash flow of $109 million.
It has more than 1 million registered developers and more than 120,000 business customers.
“That’s where the magic happens when developers use the Vonage platform to create applications for various enterprises,” Mellander said.
The acquisition marks a new phase after a period of restructuring and refocusing since Borje Ekholm took over as CEO in 2017.
Ericsson had branched out into multi-media in the early 2000s but struggled to fit its purchases into its operations, weighing on margins and profits.
“The transaction builds upon Ericsson’s stated intent to expand globally in the wireless enterprise, offering existing customers an increased share of a market valued at $700 billion by 2030,” Ericsson said in a statement.
It said it expected the Vonage deal to boost earnings per share – excluding non-cash amortization impacts – and free cash flow from 2024 onwards.
The deal is expected to close in the first half of 2022, subject to Vonage shareholder approval, regulatory approvals, and other conditions.
