Ericsson buys cloud company Vonage for $6.2 billion

Swedish Ericsson settled the purchase of cloud communications company Vonage on Monday (22) in an all-cash deal worth US$6.2 billion, as the telecommunications equipment maker moves to expand its portfolio of technology. 5G.

The deal, one of the biggest in Ericsson’s history, follows on from the $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” over a 4G network. or 5G.

Vonage, headquartered in USA, manufactures Application Programming Interfaces (API), which help different software to communicate with each other.

Ericsson will pay $21 for each Vonage share outstanding, a 28% premium to Friday’s closing price and a 34% premium to the 3-month average, a high price according to analysts.

Ericsson shares fell 3.8% in early trading, heading towards the worst day since July and the poor performance 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 space, but we also consider the price to be quite high,” said Mads Rosendal, analyst at Danske Bank Credit Research.

Vonage, which operates in sectors such as healthcare, finance, education and transportation, had sales of $1.4 billion in the 12-month period to September 30, 2021, with an EBITDA of 14% and free cash flow of US $109 million.

“The transaction builds on Ericsson’s stated intention to expand into wireless businesses globally, offering existing customers greater share of a market valued at $700 billion by 2030,” Ericsson said in a statement.

The company said it expects the business with Vonage to increase the Ebitda and free cash flow from 2024 onwards.

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