Vonage is on the acquisition trail again, announcing that it is purchasing iCore Networks for $92 million, a deal that will enhance the service provider's growing Unified Communications-as-a-Service (UCaaS) service set for business customers.
A key element Vonage gains from the acquisition is scale.
By purchasing iCore, Vonage will immediately add over 85,000 new customer seats with a monthly ARPU per customer of over $4,000, and derives over 60 percent of its revenues from customers with over 100 seats. The company said that iCore's monthly churn is below 1 percent due to three-year contracts that include QoS guarantees.
Another benefit is common network platforms. iCore leverages the same BroadSoft BroadWorks call processing platform Vonage uses today, enabling ease of integration for iCore's existing customer base. In addition, iCore offers a range of complementary services such as Microsoft Lync-as-a-Service, Infrastructure as a Service (IaaS), virtual desktop, and hosted Microsoft Exchange.
Alan Masarek, Vonage's CEO said that buying iCore "will deepen our penetration at the higher end of the business market and further strengthen our industry leadership."
Under the terms of the agreement, Vonage said a portion of the purchase price will be "deposited into escrow to secure certain indemnification rights under the merger agreement." The purchase price represents approximately 1.3 times estimated 2015 iCore revenues.
After meeting customary closing conditions and regulatory approvals, Vonage expects the acquisition to close by the end of the third quarter of 2015.
Vonage is financing the transaction through cash from its balance sheet and from the company's revolving credit facility.
Due to the similarities of the businesses and their common technology, Vonage said it expects to achieve synergies in network operations, technology used to service customers, and various operating expenses. Specifically, it has forecast that annual recurring cost synergies are expected to exceed $5 million in 2016.
This is one of several acquisitions that Vonage has made in recent years as it looks to penetrate more of the small to medium business (SMB) market with cloud-based services. Before iCore, the service provider previously purchased SimpleSignal and Telesphere, two providers that also offer enhances UCaaS capabilities.
Vonage has been bullish on the SMB service market, where it has been adding 2,500-3,000 new customers a month. Earlier this year, Masarek told investors during the Cowen and Company Technology, Media & Telecom Conference that there's still 85 percent of the SMB market left to penetrate with cloud services.
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