WICHITA, Kan. - Koch Equity Development LLC (KED), the investment subsidiary of Koch Industries, has reached an agreement to acquire iconectiv, LLC from Ericsson (BS:ERICAs) (NASDAQ: ERIC) and affiliates of Francisco Partners. The terms of the acquisition, announced today, will see iconectiv become a fully owned subsidiary of KED, while its current management team in Bridgewater, New Jersey, will continue to lead the company.
The acquisition highlights KED's strategic focus on the telecommunications sector, particularly in software and data services. This move follows KED's previous telecom investment in Transaction Network Services, Inc. in 2021. With KED's backing, iconectiv is expected to pursue growth opportunities both organically and through further acquisitions.
iconectiv, recognized as a leader in telecommunications solutions, serves as the authoritative partner to major communications service providers in the U.S. and abroad. Its offerings encompass core network and operations management, numbering, data exchange, digital identity management, and fraud prevention services. Notably, iconectiv is a global leader in number portability solutions and serves as the number portability administrator in 10 countries, including the U.S. It also plays a pivotal role in the U.S. telecommunications industry as the administrator for the Short Code Registry and the Secure Telephone Identity Policy Administrator, which are essential in combating illegal robocalling.
Richard Jacowleff, CEO of iconectiv, expressed enthusiasm for the new partnership with KED, citing the alignment with a shareholder that values long-term growth. He also acknowledged the support from Ericsson and Francisco Partners over the years. Matt Hewitt, Managing Director at KED, commended iconectiv's innovative culture and customer-centric approach, which align with KED's vision for the telecommunications sector.
The transaction, subject to regulatory approvals, is anticipated to close in the first quarter of 2025. Financial advisory for the deal was provided to KED by Rothschild & Co and Citi, with Jones Day acting as legal advisor. iconectiv received financial advice from Jefferies LLC and Goldman Sachs & Co. LLC, with Latham & Watkins LLP serving as its legal advisor.
This report is based on a press release statement.
In other recent news, Ericsson's second-quarter financial results revealed a less than anticipated decline in revenue, largely buoyed by robust demand in North America. The Swedish telecommunications equipment provider reported a 7% drop in revenue to $5.69 billion, surpassing analyst expectations. Sales in North America saw a significant increase of 14%, a boost attributed in part to Ericsson securing a substantial contract with mobile operator AT&T. Despite facing a challenging market environment, the company's adjusted gross margin improved, expanding to 43.9% from 38.3% the previous year, a change reflecting a shift in sales from the low-margin Indian market to the more profitable U.S. market.
However, Ericsson experienced a loss in adjusted earnings before interest and taxes (EBIT) of 11.9 billion crowns due to an impairment on its acquisition of cloud communications company Vonage. Analysts from PP Foresight and Inderes have responded positively to Ericsson's performance, describing the results as "encouraging" and foreseeing growing volumes in the Networks business in North America as a hopeful sign of increased investment by major operators by year's end.
Furthermore, Ericsson has reported a substantial impairment charge related to its Vonage acquisition, equivalent to approximately $1.1 billion. This impairment comes as the company reassesses growth assumptions in a challenging market environment. Since the acquisition, Ericsson has faced a downturn in its mobile network revenue and allegations of bribery in Iraq, contributing to a 50% drop in Ericsson's share price since the acquisition. The cumulative write-downs on the Vonage deal now total $4 billion, which is roughly two-thirds of the initial acquisition cost. Despite these setbacks, Ericsson had previously anticipated that Vonage would begin to contribute positively to earnings per share and free cash flow starting from 2024.
InvestingPro Insights
As Koch Equity Development LLC (KED) prepares to integrate iconectiv into its portfolio, investors are closely monitoring the financial health and market sentiment of Ericsson (NASDAQ: ERIC), the current owner of iconectiv. According to recent data from InvestingPro, Ericsson's market capitalization stands at $23.73 billion. Despite a challenging environment reflected in a revenue decline of 11.21% over the last twelve months as of Q2 2024, the company has exhibited a strong return over the last three months, with a price total return of 23.02%.
InvestingPro Tips highlight that Ericsson has raised its dividend for 4 consecutive years, underlining a commitment to shareholder returns even as it navigates market fluctuations. This is further supported by the company's ability to maintain dividend payments for 20 consecutive years. Additionally, analysts predict that Ericsson will return to profitability this year, which could signal a positive shift in the company's financial trajectory following a period of non-profitability over the last twelve months.
For investors seeking deeper insights, there are additional InvestingPro Tips available at InvestingPro's dedicated page for Ericsson, which could provide further guidance on the company's financial health and strategic positioning within the Communications Equipment industry.
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