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The recent acquisition of cloud firm Vonage will help Ericsson monetize its network investments. As per the schedule, Ericsson will close this deal by 2022.
On Monday, November 22, telecom equipment maker Ericsson (NASDAQ: ERIC) announced a $6.2 million acquisition of cloud communications company Vonage (NASDAQ: VG). This becomes one of the biggest acquisitions by Ericsson in past many years.
Last year in 2020, Ericsson acquired a US-based wireless networking company Cradlepoint for a staggering $1.1 billion. As we can also see, the Vonage acquisition is six times larger. In a statement regarding the acquisition, Ericsson said:
“The merger agreement was approved unanimously by the Board of Vonage. 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.”
The acquisition also marks a new phase for the telecom giant since Borje Ekholm took over as the company CEO in 2017. The CEO has largely focused on restructuring the business. Ever since Ericsson branched out into multi-media, it has struggled to fit its purchases into operations
The Growth of Vonage
In the last 12-months period ending September 2021, Vonage had generated sales of $1.4 billion. this was reported with a margin on adjusted earnings before interest, tax and depreciation (EBITDA) of 14% and free cash flow of $109 million.
The cloud-based Vonage Communications platform serves over 120,000 customers with over one million registered developers worldwide. Ericsson said that the acquisition will help it boost its earnings-per-share. It will include the non-cash amortization impacts along with some free cash flow from 2024 onwards.
The deal will close by the first half of 2022 subject to shareholder and regulatory approvals. Börje Ekholm, president and CEO of Ericsson also said that Vonage acquisition will help them monetize network investments. He further added:
“Communication Service Providers will be able to better monetize their investments in network infrastructure by creating new API driven revenues. Finally, 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 said that both companies will work towards accelerating their long-term growth story. “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,” he added.