The consumer VoIP protagonist of the last decade is back in the headlines with a significant M&A and a bid to regain some of its growth mojo. Vonage (NYSE:VG, news, filings) has announced an agreement to acquire Vocalocity for $130M.
Vocalocity is one of those increasingly active cloud communications companies targeting the SMB, and that's precisely what Vonage is looking to get a piece of. Consumer VoIP may not be the panacea it once targeted, but it does look as if the day of hosted VoIP is arriving.
Vocalocity had $28M in revenues in the first half of this year, up 39% from the same period last year. At the end of the year they boasted 21,000 customers, and claimed the mantle of both EBITDA positive and FCF positive operations. Compare that with Vonage's performance over the past few years at much larger scale, and you have to wonder what took them so long to take the SMB plunge.
Vonage has indicated its interest in cracking the SMB market, and this is certainly one way to jumpstart the process. I will be interested to see what sort of synergies they are able to generate given the technology overlap and network scale on dramatically different customer bases. Straddling the consumer/business fence has not been a common one in the VoIP business, but I'm not sure that the reasons why things developed that way still hold up.
For that matter, if Vonage is ready to take on hosted VoIP, they may also be looking at other cloud-based services for the SMB and could follow up with matching acquisitions. They've spent the last 5 years or so proving that a profit can in fact be made in the consumer VoIP business they fought so hard to win, but while they've succeeded they've also proven that it's not much fun on its own.
Vonage will pay for the purchase with $105M in cash and $25M in stock. They expect the purchase to be accretive to adjusted EPS in 2015.
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