Vonage Buys Vocalocity in Bid to Deepen Roots in Small-Business Voice Service Space The $130 million deal brings together two providers of Internet-based phone services.

By Catherine Clifford Oct 10, 2013

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In a move to give it increased presence in the small and mid-size business space, Vonage says it will acquire fellow Internet-based phone provider Vocalocity for $130 million in cash and stock.

The deal includes $105 million in cash and $25 million in Vonage common stock, according to a statement from the Holmdel, N.J.-based Vonage released Thursday.

Atlanta, Ga.-based Vocalocity plays heavily in the small-business market, focusing on providing Internet-based phone systems to companies with 20 employees or fewer. The company saw revenue of $28 million in the first six months of this year, a 39 percent jump from the same period a year ago, and had 21,000 customers by the end of the second quarter, according to the release.

"Entry into the [small business] segment is a key element of the growth strategy we outlined last year," said Marc Lefar, Vonage chief executive officer, in a written statement. "Vocalocity accelerates our entry with a comprehensive, high-quality product suite and scalable platform."

Getting a foothold in the small-business market is big money for Vocalocity. Voice service in North America is a $15 billion market with 32 million potential lines. Businesses with 20 or fewer employees represent 60 percent of that market, according to Vonage.

And Vonage sees a significant opportunity to turn more small-business owners into Voice Over Internet Protocol (or VoIP) service users. Vonage says 85 percent of small businesses still use traditional carriers at rates that are 40 to 50 percent higher than what Vocalocity charges Over the next five years, the market for VoIP services among small and medium-sized businesses is forecast to grow at an annual rate of 27.5 percent, according to Vonage.

Catherine Clifford

Senior Entrepreneurship Writer at CNBC

Catherine Clifford is senior entrepreneurship writer at CNBC. She was formerly a senior writer at Entrepreneur.com, the small business reporter at CNNMoney and an assistant in the New York bureau for CNN. Clifford attended Columbia University where she earned a bachelor's degree. She lives in Brooklyn, N.Y. You can follow her on Twitter at @CatClifford.

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