Swedish Ericsson to acquire cloud company Vonage in $6.2 billion deal

By Supantha Mukherjee and Helena Soderpalm

STOCKHOLM (Reuters) -Ericsson agreed Monday to buy cloud communications company Vonage in a $6.2 billion cash deal, as the telecom equipment maker expands its 5G portfolio.

The deal, one of the largest in Ericsson’s history, follows its $1.1 billion purchase of Cradlepoint last year, which gave it access to tools that can connect devices using the so-called Internet of Things through a 4G or 5G network.

US-based Vonage makes Application Programming Interface (API), which allows different software to communicate with each other.

“Vonage complements what we’ve built in the enterprise space thus far…Cradlepoint has also been one of the great springboards in building a business presence,” Ericsson CFO Carl Mellander told Reuters.

Ericsson is paying $21 for every Vonage share outstanding, a 28% premium to Friday’s closing price and a 34% premium to the past 3 month average, a price analysts say was high.

Ericsson shares fell 3.8% in early trading, heading for their worst day since July and the worst performance on the pan-European STOXX 600 index.

“We see this acquisition as a strengthening of Ericsson’s vertical integration and product offerings within the cloud space, but we also think the price tag is quite steep,” said Danske Bank Credit Research analyst Mads Rosendal.

Vonage, which operates in industries such as healthcare, finance, education and transportation, had revenues of $1.4 billion for the 12 months to September 30, 2021, with margin on adjusted earnings before interest, taxes and depreciation and amortization. 14% and free cash flow of $109 million.

It has more than 1 million registered developers and more than 120,000 corporate customers.

“That’s where the magic happens when developers use the Vonage platform to create applications for different enterprises,” Mellander said.

The acquisition marks a new phase after a period of restructuring and reorientation since Borje Ekholm became CEO in 2017.

Ericsson had started multimedia in the early 2000s, but struggled to fit its purchases into its business, which weighed on margins and profits.

“The transaction builds on Ericsson’s intention to expand globally into wireless enterprises and provide existing customers with increased market share worth $700 billion by 2030,” Ericsson said in a statement.

It said it expected the Vonage deal to increase earnings per share — excluding non-cash amortization effects — and free cash flow from 2024.

The deal is expected to close in the first half of 2022, subject to Vonage shareholder approval, regulatory approvals and other conditions.

(Reporting by Simon Johnson, Supantha Mukherjee and Helena Soderpalm, edited by Louise Heavens, Kirsten Donovan)

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