Swedish Ericsson buys the cloud company Vonage in a deal worth USD 6.2 billion
STOCKHOLM: On Monday, Ericsson agreed to buy the cloud communications company Vonage in a deal with 6.2 billion dollars in cash, as the telecom equipment manufacturer is going to broaden its 5G portfolio.
The deal, one of the largest in Ericsson’s history, follows the $ 1.1 billion acquisition of Cradlepoint last year, which gave it access to tools that can connect devices using the so-called Internet of Things over a 4G or 5G network. .
US-based Vonage manufactures Application Programming Interface (API), which helps different software to communicate with each other.
“Vonage is a complement to what we have built in companies so far … Cradlepoint was one of the big springboards for building a corporate presence,” Ericsson’s CFO Carl Mellander told Reuters.
Ericsson will pay $ 21 for each outstanding Vonage share, a 28 percent premium to Friday’s closing price and a 34 percent premium to the average for the past 3 months, according to a price analyst was high.
Ericsson shares fell 3.8 percent in early trading, heading for their worst day since July and the worst development on the pan-European STOXX 600 index.
“We see this acquisition as a strengthening of Ericsson’s vertical integration and product offering in the cloud area, but we also believe that the price tag is quite steep,” says Danske Bank’s credit analysis analyst Mads Rosendal.
Vonage, which operates in sectors such as healthcare, finance, education and transportation, had sales of $ 1.4 billion over the 12-month period to September 30, 2021, with a margin on adjusted earnings before interest, tax and depreciation of 14 percent and free cash flow of $ 109 million.
It has more than 1 million registered developers and more than 120,000 corporate customers.
“This is where the magic happens when developers use the Vonage platform to create applications for different companies,” said Mellander.
The acquisition marks a new phase after a period of restructuring and refocusing since Börje Ekholm took over as CEO in 2017.
Ericsson had branched out into multimedia in the early 2000s but struggled to get its purchases into its business, which weighed on margins and profits.
“The transaction is based on Ericsson’s stated intention to expand globally in wireless business, and offer 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 increase earnings per share – excluding effects on non-cash depreciation – and free cash flow from 2024 onwards.
The transaction is expected to be completed during the first half of 2022, subject to Vonage shareholders’ approval, regulatory approvals and other terms.
(Reporting by Simon Johnson, Supantha Mukherjee and Helena Soderpalm, editing by Louise Heavens, Kirsten Donovan)