Sweden’s Ericsson buys cloud communication company Vonage in a $6.2 billion deal

Telecom giant Ericsson announced Monday it has acquired Holmdel, New Jersey-based cloud communications firm Vonage in a $6.2 billion all-cash deal, as part of the effort to broaden its 5G portfolio. The merger agreement was approved unanimously by the Board of Vonage.

The acquisition follows Ericsson’s $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 (IoT) over a 4G or 5G network. The deal is one of the largest in the company’s history.

Ericsson CEO said the acquisition of Vonage will enable the telecom giant to provide a platform to help its customers monetize the investments in the network, benefitting developers and businesses. The acquisition, which is also part of Ericsson’s strategic intent to expand globally in the wireless enterprise, will also increase Ericsson’s share of the market to $700 billion by 2030.

The cloud-based Vonage Communications Platform (VCP) currently serves over 120,000 customers and more than one million registered developers globally. The API platform within VCP allows developers to embed 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 Vonage Communications Platform.

In a statement, Ericsson CEO Börje Ekholm says: “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. Imagine putting the power and capabilities of 5G, the biggest global innovation platform, at the fingertips of developers. Then back it with Vonage’s advanced capabilities, in a world of 8 billion connected devices. Today we are making that possible.”

Vonage, which operates across sectors such as healthcare, finance, education, and transportation, had sales of $1.4 billion in the 12-month period to Sept. 30, 2021, with a margin on adjusted earnings before interest, tax, and depreciation of 14% and free cash flow of $109 million.

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

Founded in 2001 by Jeff Pulver, Vonage provides uses extensive communications (Application Programming Interface) APIs to create proprietary SaaS-based applications that help different software communicate with each other. Vonage also delivers high-quality voice experiences through the low latency, feature-rich, carrier-grade Vonage network.

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