Ericsson has agreed to buy cloud communications company Vonage in $ 6.2 billion (AU $ 8.56 billion) cash deal, as the telecommunications equipment maker gears up to expand its 5G portfolio.
The deal, one of the largest in Ericsson’s history, follows its US $ 1.1 billion (€ 1.5 billion) purchase of Cradlepoint last year, which caused it Provided access to tools that can connect devices using what is called the Internet of Things on a 4G or 5G network. network.
Vonage, based in the United States, creates an application programming interface (API), which allows different software to communicate with each other.
“Vonage is complementary to what we have built in the business so far… Cradlepoint has also been one of the great stepping stones in building a corporate presence,” said Ericsson Chief Financial Officer, Carl Mellander. Reuters.
Ericsson will pay US $ 21 for each Vonage share outstanding, a 28 percent premium over Friday’s closing price and a 34 percent premium over the past three-month average, according to pricing analysts, a high price.
Ericsson shares fell 3.8% early in the session, on track for their worst day since July and the worst performance of the pan-European STOXX 600 index.
“We see this acquisition as a strengthening of Ericsson’s vertical integration and product offering in the cloud space, but we also find the price quite high,” said Mads Rosendal, analyst at Danske Bank Credit Research. .
Vonage, which operates in industries such as healthcare, finance, education and transportation, reported US $ 1.4 billion in revenue in the 12-month period ending September 30 2021, with a margin on adjusted earnings before interest, taxes, depreciation and amortization of 14% and free cash flow of US $ 109 million.
It has over one million registered developers and over 120,000 professional customers.
“This is where the magic happens when developers use the Vonage platform to build apps for various businesses,” 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 entered multimedia in the early 2000s, but struggled to integrate its purchases into its operations, weighing on its margins and profits.
“The transaction builds on Ericsson’s stated intention to grow globally into wireless businesses, giving existing customers an increased share of a market valued at $ 700 billion by 2030” Ericsson said in a statement.
He said he expected the deal with Vonage to increase earnings per share – excluding non-cash depreciation effects – and free cash flow from 2024.
The transaction is expected to close in the first half of 2022, subject to Vonage shareholder approval, regulatory approvals and other conditions.