Ericsson to acquire Vonage for whopping $6.2B

In a move that left some analysts scratching their heads, Ericsson plans to acquire New Jersey-based Vonage Holdings for about $6.2 billion, representing the Swedish vendor’s biggest acquisition to date.

Vonage was founded in 2001 as a VoIP provider for consumers and grew into a cloud communications provider focused on businesses. In 2020, it reported revenues of $1.25 billion. 

To hear Ericsson tell it, the deal will give it access to more than 1 million developers and a foot into an enterprise market expected to reach $700 billion* by 2030. In addition to consumer use cases, 5G is really designed for enterprises and it can make wireless the primarily choice of their connectivity, according to Ericsson President and CEO Börje Ekholm.

“With Vonage, we take an additional step, a very important step to bring enterprises onto wireless networks,” he said during a conference call with analysts. “This acquisition will bring value for the full wireless ecosystem,” including CSPs, developers and businesses.

Ericsson executives say it will help prevent wireless operators from making the same mistakes they did in 4G LTE, where the developers – think Uber or Lyft – made the big bucks riding on top of wireless networks versus the operators. Ericsson is supplying 5G infrastructure equipment to all of the big U.S. wireless operators.

RELATED: Ericsson preps for expanded enterprise push

The cloud-based Vonage Communications Platform (VCP) serves more than 120,000 customers and more than 1 million registered developers globally. The API (Application Programming Interface) platform within VCP 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 Center as a Service (CCaaS) solutions as part of the Vonage Communications Platform.

According to Ericsson, it will need to define the APIs in the future, and the tight relationship between the developer community and Ericsson’s network capabilities is going to be critical to make that successful. It’s not trying to compete with its own operator customers but trying to help them monetize their assets in new ways.

The idea is Vonage’s strong developer ecosystem will help the communication service providers better monetize their investments in network infrastructure – and that’s where the argument gets a bit wobbly in the eyes of some analysts.

“There is also a hope (a very *brave* hope, IMO) that Vonage's developer base can pivot from voice/messaging APIs to developing for mobile and network APIs in future. It's not obvious to me that a developer doing SMS appointment reminders for dentists is going to suddenly pivot to consuming 5G Network Slice/QoS APIs, or writing rApps for energy optimisation of an #OpenRAN radio network,” wrote analyst and Disruptive Analysis founder Dean Bubley in a LinkedIn post.

In fact, Bubley told Fierce via email that he believes the combined Ericsson/Vonage will be competing with fixed operators – not wireless. That’s where the bulk of UCaaS is sold and delivered. Recall that Ericsson used to sell PBXs until 2008.

“In theory, it should provoke a shrug – after all, Microsoft, Google, Zoom etc. all sell to enterprises as well, together with 100s of other providers like RingCentral,” Bubley said. As for API access, the 800-pound gorilla is Twilio.

While Ericsson’s CEO stressed the 5G developer API relationship, “it’s really unconvincing the more I think about it,” Bubley said. Asked how wireless operators might react, he doesn’t see it impacting Ericsson’s Radio Access Network (RAN) business with the telcos, unless they’re being “really petty” about it. Given that Ericsson and especially Nokia also sell CBRS kit to enterprises for private networks, that would be a “baffling response,” he noted.

“Mis-steps in this space aren’t uncommon,” he added. “The Mitel/Mavenir combination in 2015 was a real eyebrow raiser. Ultimately this might be the right move for the wrong reason. Enterprise cloud comms (and private networks) are growing. Buying Vonage and previously Cradlepoint gives Ericsson a bit more of a diversified sales base than ‘legacy’ telcos.”

In addition, “Ericsson will now be a regulated telco, given Vonage supplies phone numbers & PSTN services,” he added. “Does it really want that responsibility?”

Where it goes from here

Completion of the transaction is subject to Vonage shareholder approval, regulatory approvals and other customary conditions and is expected within the first half of 2022.

Once the deal is completed, Vonage will become a wholly owned subsidiary of Ericsson and continue to operate under its existing name. Vonage’s 2,200 employees will remain with the company and Vonage CEO Rory Read will join Ericsson leadership team, reporting to Ekholm.

The acquisition will be conducted by means of a merger agreement through which Ericsson will acquire all of Vonage’s outstanding shares at an all-cash price of $21 per share. The merger consideration represents a premium of 28% to Vonage’s closing share price on November 19 of $16.37 per share.

Ericsson said the acquisition will be financed through its existing cash resources, which amounted to SEK 88 billion as of September 30 on a gross basis and SEK 56 billion on a net basis as of the same date.

RELATED: Ericsson closes $1B Cradlepoint purchase with eye on enterprise

In a press release, Ericsson that the Vonage acquisition builds on the success of the integration of Cradlepoint in September 2020. According to Ericsson, Cradlepoint has continued to develop strongly under Ericsson’s ownership.

*Article updated to correct the anticipated size of the enterprise market to $700 billion.