Ericsson focuses on the cloud for 5G with the American Vonage
With the $ 6.2 billion acquisition of Vonage, the Swedish manufacturer moves to expand its 5G portfolio. But the Ericsson stock falls on the stock market and some analysts criticize the group's move
Ericsson will pay $ 6.2 billion in cash for the acquisition of cloud systems developer Vonage.
The agreement, a note from the Swedish telecommunications company reads, was unanimously approved by Vonage's board of directors.
The transaction builds on Ericsson's stated intent to expand globally into wireless enterprises, offering customers a greater share of a market valued at $ 700 billion by 2030.
The acquisition is the largest ever for the Swedish telecommunications equipment manufacturer.
But the market appears not to have appreciated Ericsson's move. Shares fell 3.8% in early trading, Reuters reports . The price for Vonage is considered high by analysts.
All the details.
THE OPERATION
Ericcson plans to acquire Vonage's shares at a price of $ 21 each. This is a premium of 28% compared to the close of Friday 19 November and 34% compared to the average value of the stock in the last three months.
CLOSING
The deal is expected to close in the first half of 2022, subject to Vonage shareholder approval, regulatory approvals, and other conditions.
THE GOVERNANCE
Upon completion of the transaction, Vonage is expected to remain autonomous with its own brand and works as a subsidiary of Ericsson.
WHAT VONAGE DOES
Vonage, based in the United States, builds the Application Programming Interface (API), which helps different software communicate with each other.
The company operates in industries such as healthcare, finance, education and transportation, reported sales of $ 1.4 billion in the 12-month period to September 30, 2021, with an adjusted earnings margin before interest, tax and depreciation of 14. % and free cash flow of $ 109 million.
ITS CLOUD PLATFORM
Vonage's cloud-based platform has 120,000 enterprise customers and serves 1 million developers, enabling Ericsson to reach a wider corporate audience than it does today. "The Swedish group hopes to bring the higher speeds and capacities of its 5G networks to corporate customers to create an open innovation platform for telecom operators, developers and businesses," highlights the Financial Times .
ERICSSON'S STRATEGY
Borje Ekholm, president and chief executive officer of Ericsson, said the core of the company's strategy "is to build leading mobile networks through technology leadership."
“If you look at the net, significant investments are being made, but monetization is very limited so far. We want to improve monetization capacity. Grid operators will not create 5G unless they can monetize it, ”Ekholm said.
“The acquisition of Vonage is the next step in realizing this strategic priority. Vonage offers us a platform to help our clients monetize their network investments, for the benefit of developers and businesses. Imagine putting the power and capabilities of 5G, the largest global innovation platform, within the reach of developers. Then back up with Vonage's advanced features, in a world of 8 billion connected devices. Today they are becoming possible, ”Ekholm said.
The company says it expects the deal with Vonage to increase earnings per share and cash flow from 2024 onwards.
THE COMMENT OF THE ANALYSTS
Analysts express some perplexity.
"We believe this acquisition strengthens Ericsson's vertical integration and product offering within the cloud space, but we also believe the price is quite high," Mads Rosendal, analyst at Danske Bank Credit Research, told Reuters .
According to Dean Bubley, founder of Disruptive Analysis, the acquisition will strengthen Ericsson's exposure to the cloud and enterprise market, writes the Ft . "But the telecom equipment manufacturer should be careful not to scare its major telecom customers as it has acquired a competitor company." Ericsson "needs adequate cloud communications" if it is to compete with Cisco, Microsoft, Zoom and Twilio, Bubley points out.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/innovazione/ericsson-punta-sul-cloud-per-il-5g-con-lamericana-vonage/ on Tue, 23 Nov 2021 05:16:40 +0000.