What Company Will Vonage Acquire?

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In a recent Bloomberg interview, Vonage CEO Alan Masarek indicated that Vonage might leverage the company’s near-11-year-high valuation to make acquisitions.

“We don’t feel like we have any holes in our product portfolio, but we think there’s going to be a strategic opportunity to bulk up on M&A,” Masarek said in a phone interview. “There’s likely capacity for transformational deals between our own cash resources as well as stock. For the right deals out there, there’s certainly capital that’s available. This industry will consolidate; we are an excellent platform for this consolidation.”

He did not name any potential businesses that could be targets, which leaves observers now wondering what’s on his mind.

Masarek has led the company through five acquisitions during his three years at Vonage. During this time the company has transitioned from being a consumer business to a mostly business business. He and his team appear to be savvy at acquisitions, and many acquired leaders remain at Vonage.

Although Vonage is attempting to blur everything under the Vonage Business moniker, the provider really has three distinct portfolios:

  • Vonage Essentials: An integrated UC service targeted to value-driven customers. It is powered by Vonage’s own voice technology, complemented with Amazon Chime.
  • Vonage Premier: A comprehensive UC suite powered by BroadSoft. The solution has experienced significant growth at Vonage, including some very large enterprise wins.
  • Nexmo: Vonage acquired Nexmo, a high-growth CPaaS, last year. Nexmo’s communications APIs, along with gUnify’s (acquired in 2015) middleware, gives Vonage strong customization capabilities.

Each business is interesting, with strong potential. The three together allow Vonage to span multiple markets with a highly differentiated portfolio. I figure the next acquisition will fit nicely into one of these areas, which will essentially reveal the favorite child — at least in terms of upside potential.

I can see arguments for investment in all of these portfolios, although each calls for a different strategy and list of different candidates.

Option 1: Essentials

Vonage might focus on strengthening Essentials. Owning and maintaining the underlying technology stack enables providers to differentiate their offers, prioritize development, and realize pure SaaS economics.

Vonage has already been increasing its investment and development of Essentials. Acquisitions here will likely be scalable cloud services such as conferencing, messaging, and contact center solutions.

Option 2: Premier

When Vonage acquired iCore, it was its third acquisition of a BroadSoft-powered provider, and the company appeared to be conducting a roll-up that continue for years. Yet, for whatever reason, iCore was the last provider acquired.

Now, with Cisco acquiring BroadSoft, the timing could be good to double down and become one of Cisco’s largest provider-partners. In addition to reaping big-fish rewards, Vonage could position its Essentials UC service to work with Cisco Spark and potentially even position Nexmo as a preferred CPaaS partner for Spark.

Option 3: The Extensible Provider

Over the past year Vonage has been working to consolidate the network, services, and offers between its UCaaS and CPaaS services. Vonage customers have access to some powerful and unique tools to add communications capabilities to their own or third-party applications. There’s a clear trend of unraveling communications services and, via APIs, using what’s needed, where it is needed.

If Vonage opts to strengthen its position as the extensible communications provider, then it might seek acquisitions that build out its APIs and SDKs, assist with compliance and reporting, or extend in other ways its core communications capabilities.

Option 4: None of the Above

I wouldn’t be too surprised if Masarek opts to expand the portfolio in an entirely new way — as he did when he went beyond UCaaS and acquired Nexmo. This move could manifest itself in so many ways that it is difficult to narrow. The most likely targets are chatbots, AI, and collaborative documents.

I’ve created a rather simple menu above. Realistically, acquisitions are more complex.

I can think of several potential acquisitions that could simultaneously fall into at least two of the categories above. A complicating factor is finding acquire-able companies. I can think of several good fits that are way too expensive right now.

While I won’t speculate here what companies are the strongest or likely targets, I will guess that the Essentials strategy drives the next acquisition. The lure of pure SaaS and controlled technology stacks is a strong one.

 

Dave Michels