Vonage Holdings Corp. to Acquire Vocalocity, Inc.

ccelerates Entry into Rapidly Growing Market for Hosted VoIP Communications for Small and Medium Businesses

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HOLMDEL, N.J., Oct. 10, 2013 /PRNewswire/ — Vonage Holdings Corp. (NYSE: VG), a leading provider of communications services connecting people through cloud-connected devices worldwide, has entered into a definitive agreement to acquire privately-held Vocalocity, Inc. (“Vocalocity”), an industry-leading Software as a Service (SaaS) provider of cloud-based communication services to Small and Medium Businesses (“SMBs”).

Vonage will acquire Vocalocity for $130 million, including $105 million in cash and $25 million in Vonage common stock. The transaction is expected to be accretive to adjusted Earnings Per Share (“EPS”)1 and on an EBITDA1 multiple basis in 2015.

Vocalocity is one of the fastest growing providers in the SMB hosted VoIP market. During the first half of 2013, Vocalocity had revenue of $28 million and growing, implying an annual run rate of greater than $56 million.  First half 2013 revenues were 39% higher than the same period in the prior year. Vocalocity was EBITDA1 and free cash flow1 positive during this period.  Vocalocity ended the second quarter with 21,000 customers.

The total SMB market for voice service in North America is $15 billion and 32 million lines.  Vocalocity has focused on companies with 20 or fewer employees, which represents more than 60% of the total market.  The long-term opportunity for growth in this segment is substantial given that 85% of SMBs still purchase voice service from traditional carriers at rates that are frequently 40-50% higher than those of Vocalocity.  The SMB hosted VoIP market is forecast to grow at a compound annual rate of 27.5% over the next 5 years2.

“Entry into the SMB segment is a key element of the growth strategy we outlined last year,” said Marc Lefar, Vonage Chief Executive Officer. “Vocalocity accelerates our entry with a comprehensive, high-quality product suite and scalable platform. In addition, Vocalocity’s software orientation, customer focus and innovative approach are a natural fit with our culture.”

Vocalocity CEO Wain Kellum commented, “As business VoIP moves from the early adopter phase to the mainstream, a Vocalocity and Vonage combination delivers the scale, quality and feature set to best serve customers and create phenomenal opportunities for growth. I am impressed with what Vonage has built, and look forward to joining the team.”

Upon closing, Mr. Kellum, will join Vonage as President, Business Services, and become a member of the Company’s senior leadership team.

Transaction Terms and Anticipated Synergies

Under the terms of the Merger Agreement, which has been unanimously approved by the boards of directors of Vonage and Vocalocity, shareholders of Vocalocity will receive $105 million in cash and $25 million in Vonage common stock for total consideration of $130 million, subject to customary closing adjustments.  A portion of the purchase price will be deposited into escrow to partially secure Vonage’s indemnification rights under the Merger Agreement in respect of any breach of Vocalocity’s representations, warranties or covenants as well as certain other indemnifiable matters.  The transaction is expected to close in the fourth quarter of 2013, subject to customary closing conditions.

Given the similarities of the businesses and their common use of SIP-based VoIP technology to enable communication services, Vonage expects to achieve synergies from network operations and the use of technology for serving customers.  Synergies in 2015 are estimated to be recurring and in the high single-digit million dollar range.

Evercore served as financial advisor and Weil, Gotshal and Manges as legal counsel to Vonage in connection with this transaction. William Blair and Company served as the financial advisor and DLA Piper as the legal counsel to Vocalocity.

Vonage is financing the transaction through $30 million of cash from the balance sheet and $75 million from its credit facility.  The Company will continue to execute on its balanced approach to capital allocation and expects to complete its $100 millionshare repurchase program by the end of 2014 as planned.

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