Ericsson buys cloud firm Vonage in $6.2 billion deal

Ericsson, in a bid to broaden its 5G portfolio, agreed to buy cloud communications firm Vonage in a $6.2 billion all-cash deal on Monday.

Ericsson had inked a $1.1 billion purchase of Cradlepoint last year which gave it access to tools that can connect devices using the so-called Internet of Things over a 4G or 5G network.

U.S-based Vonage makes Application Programming Interface (API), which helps different software communicate with each other.

Ericsson shares fell 3.8% in early trade, on track for their worst day since July.

Vonage, which operates across sectors such as healthcare, finance, education and transportation, had sales of $1.4 billion in the 12-month period to Sept. 30, 2021, with a margin on adjusted earnings before interest, tax and depreciation of 14% and free cash flow of $109 million.

It has more than 1 million registered developers and more than 120,000 business customers.

The acquisition marks a new phase after a period of restructuring and refocusing since Borje Ekholm took over as CEO in 2017.

Ericsson had branched out into multi-media in the early 2000s but struggled to fit its purchases into its operations, weighing on margins and profits.

It said it expected the Vonage deal to boost earnings per share – excluding non-cash amortisation impacts – and free cash flow from 2024 onwards.

The deal is expected to close in the first half of 2022, subject to Vonage shareholder approval, regulatory approvals, and other conditions.