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Sangoma makes $36m strategic acquisition of VoIP Innovations

Sangoma has acquired VoIP Innovations, or VI, for $36 million which consisted of $30 million in cash and $6 million in Sangoma common shares. VI is a privately-held, Pittsburgh-based technology company that specialises in wholesale SIP trunking offered primarily to resellers, service providers, MSPs, and call centre customers across North America.

VI has over 1,400 customers, 35 employees, and has been growing consistently the last several years. The company has also recently launched its new, strategic Communications Platform as a Service (or CPaaS) product.

“We continue to look for prudent ways to grow our product portfolio, customer base, distribution network, overall sales, recurring revenue and EBITDA,” said Bill Wignall, President and CEO of Sangoma. Wignall continued, “This acquisition is strategic to Sangoma for all of those reasons, and with about 90% of VI revenue being recurring, it should increase Sangoma’s proforma recurring/services revenue to approximately 45% of total sales. We know the SIP trunking business well, so adding a wholesale channel model to our existing go-to-market approach is quite strategic and it may provide the sales organizations for both companies with additional revenue synergies. We are also excited to now add a CPaaS offering to our growing product portfolio. I’d like to welcome all of our new staff who I’m very pleased to say will be staying with the company, as well as our valued new clients and partners, to the expanding Sangoma family.”

The acquisition, Sangoma’s eighth in eight years, provides the combined Company with several strategic advantages including: increased scale, a recurring revenue contribution that continues to grow, an entirely new product category in CPaaS, robust EBITDA margins, and an excellent new sales channel that has expressed the desire for Sangoma’s broader portfolio.

“One of the things that mattered most to us as former owners, was how the buyers would handle the VI employees and customers,” said Jason Tapolci, co-founder, shareholder and longtime CEO of VoIP Innovations. “Of all the buyers who considered the acquisition of VI, it became very clear to us that Sangoma was the company that most understood, appreciated and valued our long-term staff, loyal customers and company vision. We are very pleased that Sangoma will continue on with the VI business and we are confident it will continue to grow under the leadership of their very capable management. We have had the pleasure of getting to know the Sangoma team through these discussions and are excited to see VI taken to the next level.”

VoIP Innovations’ employees will continue to work out of their current Pittsburgh office and will be led by Sebastian Kiely, VI’s President, who will report to Sangoma’s CEO, Bill Wignall.

Transaction Details

Under the terms of the agreement, Sangoma paid an upfront consideration of US$36 million (the “Upfront Consideration”) which consisted of US$30 million in cash and US$6 million in Sangoma common shares, representing 5,500,417 Sangoma common shares based on the ten (10)-day volume weighted average price as of the date of execution of the definitive agreement. In addition, there is a contingent consideration component of up to US$6 million (the “Contingent Consideration”) that will be payable in cash upon achievement of certain revenue milestones in the twelve (12) months following the date of closing. This would lead to a total purchase price of US$42 million if achieved, on a debt-free and cash-free basis, subject to customary net working capital adjustments. VI has no debt, generated US$18.9 million in revenue for the year ended December 31, 2018, with US$3.3 million of Net Income under US GAAP, that would have generated EBITDA of about US$5.6 million, implying an upfront purchase price of about 6.4x EBITDA on a trailing basis. Please see below for a reconciliation of Net Income to EBITDA.

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David Dungay

Editor - Comms Business Magazine