On 22 November 2021, Telefonaktiebolaget LM Ericsson announced the proposed acquisition of the totality of Vonage Holdings Corp. The proposed acquisition is set at $21 per share to be paid as all-cash for a total amount of $6.2bn. The closing is expected in the first half of 2022.
Vonage and Ericsson
Ericsson is a Swedish multinational operating in the sector of telecommunications and networking and offers solutions to mobile and fixed network operators. It’s one of the global leaders in 5G. Vonage is a cloud communication provider and offers calling plans based on VoIP for individual customers and businesses.
The acquisition of Vonage by Ericsson represents the largest M&A transaction ever carried out by the Sweden group, which is set to offer access to the $22 billion Communication Platform as a Service (CPaaS) industry. This is entirely in line with Ericsson’s global expansion strategy of extending its position as a supplier of cloud-based solutions. From this standpoint, the deal is seen as another step towards promoting the company’s vertical integration, already begun in 2020 with the purchase of US-based wireless networking company Cradlepoint.
Communication Platform as a Service (CPaaS) industry in a nutshell
CPaaS describes cloud solutions that enable businesses to add real-time communication features (such as voice, video, and messaging features) to their own business applications software using APIs (Application Programming Interface). The market is divided into 2 different types of CPaaS providers: the standalone providers which focus mainly on offering CPaaS APIs (like Infobip, MessageBird, Plivo and Twilio) and communications providers that offer CPaaS as either a standalone offering or as part of their portfolio (Amazon, Avaya, RingCentral, Microsoft and Vonage).
This business sector is continuing to grow as demand for cloud communications over the last year increased and prompted new vendors to enter the market. Global market revenues reached $5.9bn in 2020 ($4.26bn in 2019) and are expected to reach $17.71bn by 2024, according to the 2021 IDC report on the market.
The newly formed organization will have the capacity to provide complementary products and services to its existing clients. Furthermore, Ericsson’s independence will be enhanced as a result of this transaction, as the Swedish firm will have better control over its supply chain. Ericsson will also decrease its exposure to the highly cyclical telecommunications market by expanding its wireless enterprise and digitalization businesses.
Authors: Massimo Spinelli, Samuele Menchini, Filippo Tagliavini