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Sweden's Ericsson snaps up cloud firm Vonage in $6.2 billion deal

Ericsson to buy cloud firm Vonage for $6.2 billion
Ericsson to buy cloud firm Vonage for $6.2 billion   -   Copyright  Thomson Reuters 2021   -  
By Reuters

<div> <p>By Supantha Mukherjee and Helena Soderpalm</p> <p><span class="caps">STOCKHOLM</span> -Ericsson on Monday agreed to buy cloud communications firm Vonage in a $6.2 billion all-cash deal, as the telecom gear maker moves to broaden its 5G portfolio.</p> <p>The deal, one of the largest in Ericsson’s history, follows its $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 or 5G network.</p> <p>U.S-based Vonage makes Application Programming Interface (<span class="caps">API</span>), which helps different software communicate with each other. </p> <p>“Vonage is complementary to what we have built in enterprise so far … Cradlepoint was one of the big stepping stones as well in building an enterprise presence,” Ericsson <span class="caps">CFO</span> Carl Mellander told Reuters.</p> <p>Ericsson will pay $21 for each outstanding Vonage share, a 28% premium to Friday’s closing price and a 34% premium to the average of the last 3 months, a price analysts said was high. </p> <p>Ericsson shares fell 3.8% in early trade, on track for their worst day since July and the worst performer on the pan-European <span class="caps">STOXX</span> 600 index.</p> <p>“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. </p> <p>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.</p> <p>It has more than 1 million registered developers and more than 120,000 business customers.</p> <p>“That’s where magic happens when developers use the Vonage platform to create applications for various enterprises,” Mellander said.</p> <p>The acquisition marks a new phase after a period of restructuring and refocusing since Borje Ekholm took over as <span class="caps">CEO</span> in 2017. </p> <p>Ericsson had branched out into multi-media in the early 2000s but struggled to fit its purchases into its operations, weighing on margins and profits.</p> <p>“The transaction builds upon Ericsson’s stated intent to expand globally in wireless enterprise, offering existing customers an increased share of a market valued at $700 billion by 2030,” Ericsson said in a statement.</p> <p>It said it expected the Vonage deal to boost earnings per share – excluding non-cash amortisation impacts – and free cash flow from 2024 onwards. </p> <p>The deal is expected to close in the first half of 2022, subject to Vonage shareholder approval, regulatory approvals, and other conditions.</p> </div>