Ericsson set to acquire US cloud communications provider Vonage in a $6.2 billion deal

Swedish telecom equipment maker Ericsson has agreed upon a deal to buy Vonage Holdings Corp in the US for $6.2 billion (Rs 46,187.21 crore) as the company looks to create its presence in cloud communications services. If the financial takeover is successful, this agreement is set to become Ericsson’s largest-ever acquisition and is five times the company's second most expensive deal worth $1.6 billion, paid to acquire Telent Ltd telecom in 2005.

According to a press release, the Swedish telecommunications group is prepared to pay $21 per share for Vonage and will be using existing funds to complete the deal. According to a company statement released on Monday, the offer agreed between the two companies is worth $6.2 billion and is soon set to become official.

The purchasing price that the Swedish company is prepared to pay for Vonage is high compared to its current market prices, according to economic and market analysts. Ericsson’s decision to venture into the cloud-based services comes at a time the company looks to recover lost revenue due to losing business in China and lack of sales due to component shortages. However, the company was adamant in saying that they remain fully committed to its long-term Ebita margin target of 15-18%. Notably, on Monday, Ericsson’s shares fell by 4.2% during early trading.

'Vonage gives us a platform': Ericsson CEO

Ericsson’s Chief Executive Office Borje Ekholm said in a statement, “Vonage gives us a platform to help our customers monetise the investments in the network, benefiting developers and businesses.” The American company’s cloud-based communications platform is responsible for almost 80% of its annual revenues and it allows the developers to embed services like messaging or video along with their products.

Ericsson saw that the cloud-based communications system is becoming more and more popular and the strong customer base attracted the Swedish company into agreeing on a deal with Vonage. Vonage has been under pressure from its investors after they advised the company to run a strategic review of the business.

Rory Read, CEO of Vonage, said, “Ericsson and Vonage have a shared ambition to accelerate our long-term growth strategy. 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.”