Shares of cloud communications firm Vonage (NASDAQ:VG) are up more than 25% this morning after Sweden’s Ericsson (NASDAQ:ERIC) announced that it would acquire the company for $6.2 billion.
So what else do you need to know?
Importantly, this deal is the largest by Ericsson in years, following its $1.1 billion buy of Cradlepoint in 2021. It is also a big deal for Vonage, which has already been on a tear in 2021. In fact, VG stock has gained 30% year to date.
What Happened With VG Stock
Investors learned on Monday morning that Ericsson will pay $21 for each outstanding share of VG stock, which comes at a 28% premium to Friday’s close. This is positive news for Vonage shareholders — and it explains the rapid gains this morning. Additionally, the Vonage board of directors has unanimously approved the deal, and Ericsson anticipates it will have a positive impact on earnings per share and free cash flow starting in 2024.
How?
Vonage has had a good year, and it is a busy company. Its cloud-based communications platform has more than 120,000 customers, and more than 1 million individuals are registered as developers. In the past 12 months, the company saw sales of $1.4 billion. Its free cash flow in that same period came in at $109 million.
Why It Matters
This good year for Vonage also intersects with a period of restructuring for Ericsson. After unsuccessfully expanding into multi-media, Ericsson has pivoted. In this way, Vonage will help strengthen its cloud communications and cloud computing, given its customer base in healthcare, finance and education.
More specifically, Vonage produces APIs, technology that allow different software programs to communicate with each other. Ericsson is already leaning into the internet of things (IOT) through its purchase of Cradlepoint. Therefore, combining the two companies will help blend the API specialty with a red-hot theme within tech. No wonder, VG stock holders are excited.
What’s Next for Vonage
Ericsson says the acquisition is expected to close in the first half of 2022, subject to shareholder and regulatory approvals. Once completed, the deal should help Ericsson to further refocus its business back to its core wireless communication offerings. It will also, hopefully, provide a boost to ERIC stock, which is down nearly 10% on the year at $10.92.
More immediately, it is shareholders of Vonage that will benefit from this deal. VG shareholders will be rewarded with more gains on top of those they’ve already enjoyed this year.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
