Vonage pushes further into business communications with Nexmo buy

Contact: Mark Fontecchio

Vonage pays $230m for Nexmo, which offers enterprise voice and text messaging APIs. The deal, Vonage’s largest in 451 Research’s M&A KnowledgeBase, pushes the VoIP provider further into the realm of unified business communications. Vonage has now spent about $600m on M&A in the past few years to pivot from a consumer-focused VoIP supplier into a business communications vendor. The gamble has paid off, with the company’s overall sales growing once again and its business revenue jumping exponentially.

Nexmo is Vonage’s biggest reach yet. Its previous nine-figure (or close to it) acquisitions – starting with Vocalocity in 2013, Telesphere Networks in 2014 and iCore Networks last year – involved business-focused VoIP providers, so Vonage stayed within its wheelhouse. With its cloud-based voice, messaging and chat APIs, Nexmo broadens Vonage’s horizons into business communications services, helping companies more easily embed voice and messaging services within their mobile apps. For that privilege, Vonage is paying a healthy multiple on Nexmo’s trailing 12-month revenue (see estimate here). The multiple is Vonage’s highest to date and one of the largest we’ve seen in mobile messaging and application development. Nexmo’s revenue is also growing at a fast 40% clip, according to Vonage.

Vonage’s overall sales grew 3% to $895m last year, but its business revenue more than doubled to $219m. Two years ago, the company had $8m in business revenue. Now its business revenue is higher than all of rival 8×8’s sales. By our math, at least three-fourths of that increase in business revenue came from its purchases of Telesphere, iCore and SimpleSignal. Meanwhile, its consumer revenue dropped 12% to $676m. Vonage’s challenge has been – and will continue to be – how quickly it can replace its disintegrating consumer revenue with business dollars, whether that be through continued M&A or more organic growth.