Reason for the pop
Ericsson to Buy Vonage for $6.2 Billion, Bulking Up Cloud Presence
Pandemic has sparked wave of acquisitions in cloud-communications software industry
Ericsson’s purchase of Vonage would be its biggest deal ever.PHOTO: FREDRIK SANDBERG/AGENCE FRANCE-PRESSE/GETTY IMAGES
By
Dominic Chopping
Nov. 22, 2021 5:01 am ETT
STOCKHOLM— Ericsson ERIC -6.64% AB agreed to buy cloud-communications provider Vonage Holdings Corp. VG +25.87% , for $6.2 billion, in deal that the Swedish telecom-equipment maker said will expand its wireless enterprise business and broaden its global offerings.
Ericsson, in what would be its biggest deal ever, agreed to pay $21 a share in cash for Vonage, representing a 28% premium to Friday’s closing share price. The purchase, which Holmdel, N.J.-based Vonage’s board has approved, will be financed through Ericsson’s existing cash resources.
The deal is the latest in a flurry of acquisitions in the cloud-communications software market. Vonage and a handful of competitors occupy a niche in the industry. These so-called communications platform-as-a-service companies provide the tools that companies use to interact with employees and customers by text, WhatsApp, other chat services, video and voice.
The field surged during the pandemic, as companies, especially retailers, sought to connect with their customers virtually. The two giants of the field, Twilio Inc., based in San Francisco, and Sweden’s Sinch AB, have recently bulked up, part of a consolidation push inside the industry.
In September, Sinch announced a $1.9 billion deal to acquire privately held Pathwire, bolstering its offering of cloud-based email services that companies use to market their products. That follows Sinch’s February pact to buy Chicago-based Inteliquent for $1.1 billion and then its $1.3 billion tie-up for MessageMedia in June.
Twilio has struck at least nine deals since listing in 2016, according to Dealogic. Its largest was the $3.2 billion pact last year for Segment, a software provider that helps businesses track and manage customer data.
Ericsson said it expects the transaction to be accretive to earnings per share and free cash flow before acquisitions from 2024 onward. Vonage employs 2,200 people. Its sales totaled $1.4 billion in the 12-month period to Sept. 30, delivering an adjusted earnings before interest, tax, depreciation and amortization margin of 14% and free cash flow of $109 million.
The deal is expected to complete within the first half of 2022, subject to shareholder and regulatory approvals, Ericsson said.
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