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Vonage Dials Up A Discount In $130m Purchase Of Vocalocity

|Includes:RNG, Vonage Holdings Corp. (VG)

By: Scott Denne

Vonage (NYSE:VG) picks up Vocalocity for $130m in a sizeable and relatively safe bet to turn around a declining business. It's a big bite for Vonage, which will be borrowing heavily to fund the deal. But at least Vonage is getting a discount on its purchase of the business VoIP provider: Vocalocity is valued at less than half the level of its competitors on the public markets.

Vocalocity posted $28m in revenue for the first half of the year, up 39% from the same period a year ago. While that growth is faster (due partially to starting at a smaller base) than its larger public rivals 8x8 and RingCentral (NYSE:RNG), its valuation is lower. According to our quick math, Vonage is valuing Vocalocity at just about 2.5x trailing 12-month sales. Meanwhile, RingCentral currently boasts a 7.7x trailing sales valuation, while 8x8 pencils in at 6.7x.

To cover its largest acquisition, Vonage is paying $105m in cash ($30m from its treasury and drawing $75m from its revolver), along with $25m in stock. Even though the new paper dilutes existing shareholders, Wall Street backed the purchase. Vonage's long-suffering shares jumped 15% on the deal, hitting their highest level in more than two years.

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Stocks: VG, RNG