Overview of the deal

• Acquirer: Verizon Business – a telecommunications giant (2nd place after AT&T)

Veriozon is an American telecommunications conglomerate:

• providing consumer-focused wireless communications services through Verizon Consumer Group
• offering video & data services & networking & security solutions through Verizon Business Group
• Basic numbers
  • No. of employees: 135,500
  • Market cap: $253.94 bil (Dec 31, 2019)
  • EV: $381.69 bil
  • LTM Revenue: $131.35 bil | LTM EBITDA: $46.99 bil
  • LTM EV/Revenue: 2.9x | LTM EV/EBITDA: 8.12x

• Target: BlueJeans Network – a video-conferencing company

BlueJeans Network is a cloud-based video conferencing company

• Capable of connecting many users across devices, platform and conference programs like Skype, Facebook live, Workplace and Dolby Spatial Audio
• No. of employees: 545
• A private company

• Estimated value: $400-500 mil – arguably represents a discount to BlueJeans’ last private valuation of $728 mil.

Why did it take place?

• BlueJeans is in the growth phase, but faces great competition from Zoom & Microsoft Teams (41% & 21% market share respectively); it was searching for a large partner to help reach the next level;
• Verizon was seeking a platform to integrate into its 5G products roadmap.
• Moreover, they could leverage the R&D of both companies to enhance their offering to high growth areas such as telemedicine, distance learning, and field service work.

Projections and assumptions

Short-term consequences

• Post deal announcement, Verizon’s shares were up 0.2%, demonstrating a positive investor response as many are aware of the booming demand for online meeting tools;
• In the US, the coronavirus outbreak has advanced the need for more robust 5G technologies, whose market is expected to expand at a CAGR of 11.5%.

Therefore, the acquisition of BlueJeans would be a stepping stone to enhance its online business presence

Long-term upsides

• Verizon plans on using their 5G technology to produce a much more advanced video-conferencing experience, which
  • allows for a more unified connection between mobile or wireless stations,
  • with faster download and upload speeds and lower latency.

Verizon hopes that it will enable a long term revenue synergy resulting from the complementary nature of the two products.

• Unlike many of its competitors, BlueJeans has no free offerings, mainly as its primary market is businesses, which means they can target their development towards features that are specifically for businesses. This will hopefully allow Verizon and BlueJeans to capture a large amount of the B2B share of the video conferencing market.

The global market for video conferencing has a forecasted CAGR of 9.9% from 2020 to 2027. The expected main drivers are

• continued broad distribution of enterprise employees away from corporate headquarter centers,
• the need for reduced operational costs and providing a more flexible work arrangement for various employees and contractors.

The hope is that the Coronavirus-induced digitization of communication will prevail to some degree and BlueJeans will be able to capitalize on its position.

Risk and uncertainties

• It is uncertain if the rapid growth of the video-conferencing market will sustain past the COVID-19 epidemic. The need for such software could be less important when people will be able to communicate in person and work in traditional offices.
• The transition might not be easy between the two companies as there are generally culture differences between startups and large corporations. 
• With the various already established video-conferencing products, it is uncertain whether Verizon will be able to differentiate in a significant way, especially to a greater extent than competitors like Microsoft, Cisco, and Google.
• 5G rollout in cities and towns is still intermittent or backlogged due to its cost and necessary changes to infrastructure, which raises challenges for Verizon in regards to building BlueJeans into their 5G network.

Content source: Tenerowics. R., Solnik. C., Ratoviz. O., Leung. C., Yip. K. (2020) Verizon's $500 Million Acquisition of BlueJeans. Available at: https://www.mergersight.com/post/verizon-s-500-million-acquisition-of-bluejeans?fbclid=IwAR3lD3rzv0Q1Q9oqzCn6R5MkuHd43iUo3kIKvm3LkwmglixOq9r1CGq26Zo [Accessed on Apr 28, 2020]