Ericsson announced its agreement to acquire Vonage Holdings for approximately $6.2 billion as part of the strategy to build an enterprise business.
Borje Ekholm, President and CEO of Ericsson, said: “Vonage gives us a platform to help customers monetize the investments in the network, benefitting developers and businesses.”
Ericsson reported 2 percent drop in its total sales to NOK 56 billion in the third quarter of 2021.
Ericsson in enterprise business
Ericsson believes that 5G for Enterprise provides an exciting opportunity for Ericsson. Ericsson’s existing 5G Enterprise portfolio includes Dedicated Networks and a global IoT platform.
Ericsson recently acquired Cradlepoint business, a US-based market leader in Wireless Edge WAN 4G and 5G Enterprise solutions. The acquisition started contributing to gross margin improvement for the Group in the third quarter.
Nokia in enterprise business
Ericsson rival Nokia generated third quarter sales of 368 million euros from its enterprise business. Nokia earlier faced headwinds related to Network Infrastructure Enterprise products. Nokia has more than 380 customers for private wireless solutions. In Q3 2021, Nokia added 101 Enterprise customers and its pipeline remains strong.
Vonage is a global provider of cloud-based communications with sales of $1.4 billion in the 12-month period to 30 September 2021. Vonage delivered an adjusted EBITDA margin of 14 percent and free cash flow of $109 million.
The Vonage Communications Platform (VCP) serves over 120,000 customers and more than one million registered developers globally. The API (Application Programming Interface) platform within VCP allows developers to embed communications – including messaging, voice and video – into applications and products, without back-end infrastructure or interfaces.
VCP accounts for approximately 80 percent of Vonage’s current revenues and delivered revenue growth in excess of 20 percent in the three-year period to 2020, with adjusted EBITDA margins moving from -19 percent in 2018 to break-even in the 12-month period to 30 September 2021. Vonage’s management team projects annual growth of over 20 percent for VCP in the coming years.
Vonage’s presence in the Communication Platform as a Service (CPaaS) segment will provide Ericsson with an opportunity to access a complementary, substantial and high growth segment. CPaaS market is expected to reach $22 billion by 2025, growing at 30 percent annually.
Ericsson’s leadership in 5G technology is expected to provide access to the developing space for open network APIs, which is expected to reach at least USD 8 billion by the end of the decade with a strong growth profile.
The transaction is expected to deliver revenue synergy opportunities, including white-labelling and cross-selling of the product portfolio estimated to contribute USD 0.4 billion by 2025. Ericsson also expects to achieve some cost efficiencies following completion of the transaction.
Vonage will become a subsidiary of Ericsson and will continue to operate under its existing name. It will be reported as a separate segment in Ericsson accounts. Vonage is headquartered in Holmdel, New Jersey in the United States with 2,200 employees throughout the United States, EMEA and APAC.
Vonage CEO Rory Read will join the Executive Team of Ericsson, reporting to CEO, Borje Ekholm. Read joined Vonage as CEO in July 2020. With more than three decades’ global technology industry experience, Read was previously Chief Operating Executive for Dell Technologies and before that, CEO of Advanced Micro Devices (AMD).