Sangoma Buys NetFortris for $80 Million, Boosts Channel Play

Sangoma, the communications-as-a-service provider, has acquired NetFortris for $80 million. The deal extends Sangoma’s suite of cloud services with new MSP capabilities, which it says means more one-stop shopping for customers. It’s the company’s eleventh acquisition in eleven years.

Cloud Communications Services

Sangoma’s Bill Wignall

Bill Wignall is president and CEO of Sangoma.

He said that a critical part of the company’s existing strategy, and its competitive differentiation, means providing customers with the widest set of cloud communications services. This avoids the need for customers to buy many different services from multiple different vendors.

“The acquisition of NetFortris further extends that strategy in such a perfectly natural manner. Not only can customers already get from Sangoma all the ‘aaS’ products they use today, but now they will also be able to obtain all the other cloud-based MSP services they know they need,” Wignall said. “This acquisition demonstrates our innovative, unique, forward-looking vision. It continues to push Sangoma ahead in the market, further differentiating us from the competition.”

NetFortris provides UCaaS and cloud-based, fully managed MSP solutions for businesses of all sizes and across all industries. In addition to NetFortris’ UCaaS offering, its MSP product line delivers mission-critical communications services that complement its as-a-service applications, such as managed network security, managed SD-WAN, managed network access and monitoring. These MSP services are built upon a highly integrated, end-to-end managed network, backed up by an around-the-clock network engineering team. NetFortris has more than 6,000 customers in North America and more than 60,000 seats. It will generate what Sangoma expects to be $50 million in annual revenue.

Financial Rationale

Frost & Sullivan’s Elka Popova

Elka Popova is VP of connected work research at Frost & Sullivan.

“Our research continues to show that customers want one vendor to go to for their cloud communications and collaboration requirements. Many organizations also prefer to purchase additional services – e.g., cybersecurity, broadband, etc. – from their UCaaS providers. With the addition of NetFortris, Sangoma’s approach will resonate extremely well with customers of all sizes,” Popova said.

In addition to its end customers, some of Sangoma’s existing channel partners are already in the MSP business. This will give the company the opportunity to meet more of their needs for such products and services.

Sangoma’s David Portnowitz

David Portnowitz is SVP of marketing at Sangoma. He said that the acquisition will not result in a change in the levels of support NetFortris’ channel partners already receive.

“All of those things are going to stay in place,” he said. “The main difference is that they’re going to have more products to sell. Sangoma comes with an entire portfolio of communication-as-a-service products including UCaaS.”

Portnowitz added that Sangoma’s channel partners will benefit from resources they didn’t have in terms of network security, SD-WAN and network connectivity.

“It’s going to open up new channels and new verticals for both partner bases,” he said.

Financial Outlook

The following outline the financial details that Sangoma says are a benefit from the NetFortris deal.

• Strong recurring revenue: NetFortris generates over 90% of its revenue in MRR. This will bring Sangoma closer to 75% (pro-forma) of our revenue in services.
• Increases scale and position in cloud communications: An additional 60,000 seats and over USD $50 million in expected annualized revenue. It will help maintain Sangoma’s position in the top tier of a consolidating market.
• Compelling valuation: Acquiring an “at-scale” cloud communications company at approximately 1.3 times the revenue.
• Diversified customer base with a familiar channel model: A customer base of over 6,000 clients with minimal concentration. It has an average customer life approaching seven years, and a channel structure very similar to what Sangoma uses today.
• New potential M&A opportunities: New possible acquisition targets in this category of MSPs, to complement those in the UCaaS space.
• Meaningful opex synergies: Opportunities have been identified for expected annual cost savings starting in the first six months.
• Strong management and operating talent: Seep skills and experience are very valuable during these times of intense competition for talent.

It’s the second major channel-impacting acquisition for Sangoma in the past two years. The company bought Star2Star last spring.