Ericsson on Monday agreed to buy cloud communications company Vonage in a $6.2 billion cash deal, as the telecommunications equipment maker expands its 5G portfolio.
The deal, the largest in Ericsson’s history, follows last year’s $1.1 billion purchase of Cradlepoint, which gave it access to devices that connect devices via 4G or 5G networks using the so-called Internet of Things. can do.
US-based Vonage creates the Application Programming Interface (API), which allows different software to communicate with each other.
“Vonage complements what we’ve built so far in the enterprise space… Cradlepoint has also been one of the great springboards in building a business presence,” Ericsson CFO Karl Melander told Reuters.
Ericsson is paying $21 for each Vonage share, a 28% premium over Friday’s closing price and a 34% premium over the previous 3-month average, a price analysts say was high.
Shares of Ericsson fell 3.8% in early trade, heading for its worst day since July and the worst performance on the pan-European STOXX 600 index.
“We view this acquisition as strengthening Ericsson’s vertical integration and product offering within the cloud space, but we also think the price is fairly bullish,” said Danske Bank Credit Research Analyst Mads Rosendal.
Vonage, which operates in industries such as healthcare, finance, education and transportation, had revenue of $1.4 billion in the 12 months to September 30, 2021, with margins on adjusted earnings before interest, taxes and depreciation and amortization. 14% and free cash flow of $109 million.
It has over 1 million registered developers and over 120,000 corporate clients.
“That’s where the magic happens when developers use the Vonage platform to build applications for a variety of enterprises,” Melander said.
The acquisition marks a new phase after a period of restructuring and restructuring since Borje Ekholm became CEO in 2017.
Ericsson introduced multimedia in the early 2000s, but struggled to fit its purchases into its business, which weighed on margins and profits.
“The deal builds on Ericsson’s intention to expand into wireless enterprises globally and provide existing customers with an increased market share of $700 billion by 2030,” Ericsson said in a statement.
It said it expects the Vonage deal to increase earnings per share — excluding non-cash amortization effects — and free cash flow through 2024.
The deal is expected to close in the first half of 2022, subject to Vonage shareholder approval, regulatory approval and other conditions.
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