In a surprise move, Sangoma and Star2Star are merging in a deal worth $437 million, creating a key rival for 8×8, RingCentral and Vonage.

Sangoma is poised to reposition itself as a leading global cloud communications provider by acquiring Star2Star. That’s according to Raul Castanon, senior research analyst with 451 Research, part of S&P Global Market Intelligence.

The Sangoma-Star2Star merger follows a series of M&A transactions in cloud communications, he noted. That includes 12 CPaaS-related deals in 2020.

“This highlights the shift to cloud communications, which accelerated post-COVID-19,” Castanon said. “It also highlights a trend toward comprehensive offerings encompassing customer engagement and employee communications (i.e. CCaaS and UCaaS) and programmability (i.e. CPaaS). These are the key drivers for this deal.”

Sangoma will acquire Star2Star for $437 million, including $105 million in cash and 110 million common shares of Sangoma. The transaction is subject to approval by Sangoma shareholders at a special meeting in late March or early April.

Creating a Key Rival

451 Research’s Raul Castanon

“The acquisition of Star2Star complements previous transactions – namely, Asterisk PBX software pioneer Digium and CPaaS provider VoIP Innovations – and should support Sangoma’s efforts to transition into a cloud-based, software and services business,” Castanon said. “In addition, the target should help Sangoma reposition as a leading global cloud communications provider, alongside key competitors 8×8, RingCentral and Vonage. A key challenge will be bringing these assets together into a comprehensive, integrated cloud communications portfolio. However, experience shows that Sangoma has been skillful integrating past acquisitions.”

Michelle Accardi is Star2Star’s president and chief revenue officer.

Star2Star’s Michelle Accardi

“Sangoma’s products and cloud services are incredibly complementary to ours and will provide our partners with more revenue opportunities,” she said. “Star2Star partners and customers will be able to obtain an end-to-end UCaaS solution because Sangoma offers phones, headsets, SBCs and gateways that can be sold with the Star2Star cloud solution. The Star2Star channel would also ultimately be able to sell not only [these items], but also since Sangoma offers wholesale services and access control as a  service, the Star2Star channel would be able to sell that as well.”

Completes Long-Term Evolution

Bill Wignall is Sangoma‘s president and CEO. He said the acquisition completes Sangoma’s long-term evolution into a leading cloud services company.

Sangoma’s Bill Wignall

“Customers today are demanding an integrated buying experience for all their communications needs,” he said. “The combination of Sangoma and Star2Star will satisfy that need with the broadest set of cloud-native CaaS and related solutions in the industry. This transaction ensures we can meet any customer’s preference, be it for purely cloud solutions, or for on-premises deployments, or a hybrid combination, all the way from small businesses to large enterprises. For many years, we have consciously pursued a strategy to transform Sangoma from a product business to one of the communications industry’s leading SaaS companies.”

The combined company’s annual revenue will approach $250 million, Wignall said.

Accardi said the acquisition will …

… “absolutely change” the cloud communications competitive landscape.

“The combined companies have employees in 20-plus countries with thousands of customers in 125-plus countries, and has access to every go-to-market avenue available,” she said. “As the industry continues to consolidate, it’s incredibly important to get into the top tier of companies. This transaction placed the combined company squarely in the upper echelon of the cloud communications space. There are no very large global players yet and most of the runway is still in front of us.”

Positioned for Sustained Growth

There is no company better positioned for sustained growth, Accardi said.

“After close, Star2Star will be a Sangoma company,” she said. ” The companies are definitely contemplating how to bring the best of both brands under a single, unified brand. But nothing has been decided yet. More to come post closing of the deal.”

The combined business plans to grow the Start2Star business in North America, Accardi said. Furthermore, it plans to grow it globally to expand partners’ reach.

There are no plans to change or remove any jobs, Accardi said. Both organizations “ran lean” through 2020, and the “thesis for coming together” is to grow the company.

“We see the need for all the resources we have,” she said. “Some projects and positions could change in areas longer term. But we see opportunities at equivalent compensation levels for most everyone as long as we continue to execute at a high level.”

While Star2Star has focused exclusively on the U.S. market, the combination will enable Sangoma to deploy Star2Star’s cloud solutions to its global customer base in over 100 countries. This will include deploying cloud-native solutions where they are relatively under penetrated and less competitive.