Ericsson ready to play the CPaaS Game, to acquire Vonage for $6.2 billion

Ericsson has entered into an agreement to acquire Vonage Holdings Corp. for US$21 per share. This represents a total acquisition price of approximately US$6.2 billion in enterprise value.

Ericsson to acquire Vonage for $6.2 billion

In a statement, the Swedish gear maker said that Vonage's Board of Directors unanimously approved the move. Ericsson has been looking to capitalize on the latest CPaaS movement and wireless enterprise, a market valued at US$700 billion by 2030. For Ericsson, the acquisition builds on the success of the integration of Cradlepoint in September 2020. Since then, Cradlepoint has continued to develop strongly under Ericsson’s ownership.

Börje Ekholm, President and CEO, Ericsson, said, “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.”

“Today Network APIs are an established market for messaging, voice, and video, but with significant potential to capitalize on new 4G and 5G capabilities. 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.”

On the occasion, Rory Read, CEO, Vonage, 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.”

Read further added, “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.”

What is Voyage?

Vonage is a cloud-based CSP and has been on a strong upward trajectory for the last few quarters. It recorded sales of US$1.4 billion in the 12-month period to 30 September 2021. Further, the company delivered an adjusted EBITDA margin of 14% and free cash flow of US$109 million. The company has a CPaaS called the Vonage Communications Platform, or VCP. Right now, the VCP serves over 120,000 customers and over a million registered developers globally.

The API  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 VCP.

Performance-wise, VCP accounts for almost 80% of Vonage’s current revenues and delivered revenue growth of over 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.

Ericsson and Vonage - All in for CPaaS

Vonage’s presence in the CPaaS segment will provide Ericsson with an opportunity to access a high-growth segment. With increasing investments in 4G and 5G, demand from enterprises for programmable networks has been increasing.

CPaaS technologies democratize network access by offering API-enabled communications services. The CPaaS market is also expected to reach US$22 billion by 2025, growing at 30% annually. Ericsson can further leverage its position in the 5G tech market to deliver open network APIs to its customers. The network API market has been expected to reach at least US$8 billion by 2030, with a strong growth profile. Telcos can also potentially benefit from this; monetizing their network investments, optimizing the user experience, and stimulating additional growth opportunities with new and advanced global network APIs. Ericsson added that it will also come with access to Vonage’s UCaaS and CCaaS solutions.

Ericsson said that the partnership will allow it to lead enterprise digitalization and developing advanced APIs made possible by 5G; putting the power of the wireless network and communications at the fingertips of the developer. Such APIs can be applied to help ensure the QoS for mission-critical use cases like telemedicine, immersive virtual education, and autonomous vehicles. Long term, the Swedish telecom gear maker will look to deliver capabilities to the whole ecosystem.  Ericsson added that it will create a global platform for open network innovation.

Overview of the Ericsson-Vonage Deal

Ericsson will acquire Vonage's outstanding shares, at an all-cash price of US$21 per share. Interestingly, this will represent a premium of 28% to Vonage's closing share price on 19th November of US$16.37 per share. Ericsson will dive into its cash reserves for the deal, which amounted to SEK 88 billion (US$9.80 billion). As has been evident, Ericsson will see near-term revenue synergies. As such, Ericsson will white-label and cross-sell the combined product portfolio, which will contribute about US$0.4 billion by 2025. However, when the gear maker does develop a CPaaS platform of its own, the revenue synergies will increase.

When the deal goes through, Vonage will become a wholly-owned subsidiary of Ericsson. However, it will still continue to use its existing name and operate as such. Vonage CEO Rory Read will join Ericsson's Executive Team, reporting to CEO, Börje Ekholm. The gear maker also added that it will complete the deal within the first half of 2022, subject to Vonage shareholder approval, regulatory approvals, and other customary conditions.