Ericsson boosts business play with $6.2bn Vonage acquisition

Ericsson has entered into an agreement to acquire Vonage Holdings Corp in a $6.2bn deal, establishing a presence in the communication platform as a service (CPaaS) segment. In the early part of the millennium, Vonage was one of the pioneers in the new world of IP-based business communications replacing traditional PBX systems.

In the 12-month period to 30 September 2021, Vonage racked up sales of $1.4bn with an adjusted EBITDA margin of 14% and free cash flow of $109m. The flagship cloud-based Vonage Communications Platform (VCP) serves over 120,000 customers and more than one million registered developers globally.

The application programming interface (API) platform within VCP is said to allows developers to embed high-quality communications – including 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 centre as a service (CCaaS) as part of the VCP.

VCP accounts for about 80% of Vonage’s current revenue and delivered revenue growth in excess of 20% in the three-year period to 2020, with adjusted EBITDA margins moving from -19% in 2018 to break-even in the 12-month period to 30 September 2021. Vonage’s management team projects annual growth of over 20% for VCP in the coming years.

Ericsson noted that increasing investments in 4G and 5G – and a flourishing ecosystem of new applications and use cases leveraging the power of modern networks – has resulted in accelerating demand from enterprises for programmable networks. It said CPaaS technologies democratise network access by offering API enabled communications services and cited research showing the CPaaS market is expected to reach $22bn by 2025, growing at 30% a year.

Ericsson expects its position in 5G technology to provide access to the developing space for open network APIs, which it predicts to reach at least $8bn by the end of the decade with a strong growth profile.

Ericsson also sees its CSP customers benefiting from the acquisition by monetising their network investments, optimising the user experience and stimulating additional growth opportunities with new and advanced global network APIs and access to Vonage’s unified communications and contact centre offerings.

“The core of our strategy is to build leading mobile networks through technology leadership,” said Börje Ekholm, president and CEO of Ericsson. “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 monetise the investments in the network, benefiting 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 eight billion connected devices.

“Today, network APIs are an established market for messaging, voice and video, but with a significant potential to capitalise on new 4G and 5G capabilities. Vonage’s strong developer ecosystem will get access to 4G and 5G network APIs, exposed in a simple and globally unified way. Businesses will benefit from the 5G performance, impacting operational performance, and share in new value coming from applications on top of the network.”

Vonage CEO Rory Read added: “The convergence of the internet, mobility, the cloud and powerful 5G networks are forming the digital transformation and intelligent communications wave, which is driving a secular change in the way businesses operate. The combination of our two companies offers exciting opportunities for customers, partners, developers and team members to capture this next wave.”