Ericsson dials into enterprise wireless market with $6B Vonage buy

Telefonaktiebolaget LM Ericsson (publ) wants a bigger slice of the enterprise wireless market, and the company is willing to pay billions of dollars to get it.

Ericsson agreed Nov. 22 to acquire Vonage Holdings Corp. for $21 per share, valuing the company at about $6.2 billion on an enterprise basis. The deal by far represents Ericsson's largest by transaction value, coming in well above its second-largest deal — Ericsson's 2009 purchase of Turkey's Bizitek Bilgisayar Yazilim ve Internet Teknolojileri AS.

The transaction is motivated by Ericsson's expansion into the fast-growing communications-platform-as-a-service, or CPaaS, market, CEO Borje Ekholm said during a Nov. 22 call. CPaaS is a cloud-based solution that allows customers to add voice, video and messaging features to their existing business software.

The cloud-based Vonage Communications Platform serves over 120,000 customers and more than 1 million registered developers. VCP, which accounts for about 80% of Vonage's revenues, delivered revenue growth in excess of 20% in the three-year period to 2020, and its management team expects that pace to be maintained in the coming years.

The overall CPaaS market is projected to grow 28% annually through 2025, according to 451 Research's CPaaS Market Monitor.

"The [Vonage] deal reflects a strategy of building consumption through developer engagement. As organizations move through the process of digitization, communications services are increasingly being consumed by the applications that are core to the businesses that are using them; consequently, to be successful, vendors have to be able to engage at an [Application Programming Interface] level," 451 Research analysts Raul Castanon-Martinez, Brian Partridge and Eric Hanselman said in a research note on the deal.

The analysts noted that the Vonage purchase builds on Ericsson's 2020 acquisition of CradlePoint Inc., a provider of enterprise wireless wide-area network solutions, for $1.05 billion. The two deals in tandem support "the narrative that Ericsson is increasingly willing to engage directly with enterprises, sometimes outside of its existing telecom ecosystem," the analysts said.

The $6.2 billion enterprise value for Vonage represents a multiple of 4.4x trailing-12-month revenue, according to 451 Research data.

Since the start of 2020, there were 22 deals in the enterprise voice over IP and telephony sector, with a median multiple of 3.1x enterprise value/trailing-12-month revenue.

The Vonage valuation sits between other specialist CPaaS transactions this year. Vonage rival Twilio Inc. has made three acquisitions in 2021, including text messaging software service Zipwhip at 7.7x enterprise value/trailing-12-month revenue. Sinch AB (publ) has made four deals, valuing Inteliquent, a Chicago-based supplier of voice, messaging and 911 services at 2.1x enterprise value/trailing-12-month revenue, according to 451 Research data.

451 Research is part of S&P Global Market Intelligence.