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Verizon's $500 Million Acquisition of BlueJeans

By Ryan Tenerowicz, Charlie Solnik, and Ory Ratoviz (California Polytechnic State University), Chris Leung, and Krystal Yip (University of Warwick) | 4/26/2020


Overview of the deal

Acquirer: Verizon Business

Target: BlueJeans Network

Estimated value: USD$400-500M

Announcement date: 16.04.2020

Acquirer Advisors: Debevoise & Plimpton

Target Advisors: Evercore, Goodwin Procter

Telecommunications giant Verizon Business is expected to acquire video-conferencing tool BlueJeans Network for a value between USD$400 million – $500 million, and is due to close in Q2 2020. Verizon has not disclosed further acquisition price or terms.

The estimated USD$400-500 million Verizon has paid for the American video-conferencing platform arguably represents a discount to BlueJeans’ last private valuation. The company was worth just under USD$500 million after a 2013 funding round and in 2015, its valuation was pushed to $728 million. The acquisition could still mean a substantial return for BlueJeans’ external investors that have injected $175 million into the company.

At the time, BlueJeans reached a plateau in growth activity, faced great competition from video-conferencing rivals Zoom and Microsoft Teams accounting for 41% and 21% of the web conferencing market share respectively, and was searching for a large partner to help reach the next level. On the other hand, Verizon was seeking a platform to integrate into its 5G product road-map. Having worked as a BlueJeans authorized re-seller, Verizon found that the trusted meeting platform fitted perfectly into Verizon’s plan of expanding its unified communications portfolio. The combination of BlueJeans’ world class video platform and trusted brand with Verizon’s computing innovation will deliver highly differentiated solutions to their joint customers. In addition, BlueJeans will be able to leverage the R&D of both companies to enhance their offering to “high growth areas such as telemedicine, distance learning and field service work,” according to Verizon.

We are excited to combine the power of BlueJeans’ video platform with Verizon Business’ connectivity networks, platforms and solutions to meet our customers’ needs.” - Tami Erwin, CEO of Verizon Business

Company details (Verizon)

Verizon is an American telecommunications conglomerate which engages in provision of communications, information and entertainment services. The company operates through the Verizon Consumer Group, which provides consumer-focused wireless communications services and Verizon Business Group which offers video and data services as well as networking and security solutions.

  • Founded in 1983, headquartered in New York City, New York, United States

  • CEO: Hans Vestberg

  • Number of employees: 135,500

  • Market Cap: $253.94B (as of 12/31/2019)

  • EV: $381.69B

  • LTM Revenue: $131.35B

  • LTM EBITDA: $46.99B

  • LTM EV/Revenue: 2.90x

  • LTM EV/EBITDA: 8.12x

Company details (BlueJeans)

BlueJeans Network is a cloud-based video conferencing company that brings video, audio and web conferencing services together. BlueJeans conferencing technology is capable of connecting many users across devices, platforms and conference programs. They have a deeply ingrained history of innovation, being the first to connect to Skype rooms, Facebook Live and Workplace as well as the first cloud platform with Dolby Spatial Audio.  

  • Founded in 2009, headquartered in Mountain View, California, United States

  • CEO: Quentin Gallivan

  • Number of employees: 545

  • BlueJeans is a private company  

Projections and assumptions

Short-term consequences

Post deal announcement, Verizon’s shares were up 0.2% to $57.07 and have continued to hold up with the telecoms sector proving resilience in the midst of the coronavirus pandemic. This demonstrates a positive investor response to the deal as many are aware of the booming demand for online meeting tools given that many employees now work from home. BlueJeans experienced a service jump of 300% on their video-conferencing services since the start of March, and Verizon is currently handling 800 million calls a day.

In the U.S, the coronavirus outbreak and the rise in remote work has advanced the need for more robust 5G technologies. The demand on bandwidth has increased by 75% in the second week of March; as the demand on bandwidth rises, more advanced solutions such as 5G will be required to provide networks at a faster rate. The global 5G market is expected to expand at a CAGR of 11.5% despite recent 5G-coronavirus conspiracy theories.

Verizon recently reported $1.26 in adjusted earnings per share in Q1, $0.04 ahead of analysts’ estimates. However, revenue came in at $31.6 billion, approximately $800 million short of analysts’ estimates and a decrease of $500 million from a year ago. Lower equipment sales, down by 16%, made up most of the shortfall as 70% of its stores are closed due to the pandemic. 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. Verizon Communications CEO Hans Vestberg said that BlueJeans will be built into Verizon’s 5G network. “Ultimately videoconferencing and video will be enormously important in 5G,” he said. The 5G technology Verizon is developing allows for a more unified connection between mobile or wireless stations, with faster download and upload speeds and lower latency, and the hope is that in pairing Verizon’s new 5G capabilities with the video-conferencing platform BlueJeans already has developed, it will enable a long term revenue synergy resulting from the complementary nature of the two products.

Additionally, unlike many of its competitors, BlueJeans has no free offerings, mainly due to the fact that its primary market is businesses. However, this means they can target their development towards features that are specifically for businesses. This coupled with the need for accelerated digitization from Coronavirus will hopefully allow Verizon and BlueJeans to capture a large amount of the B2B share of the video conferencing market.

One might assume the acquisition was an opportunistic move for Verizon to capitalize on the recent shift towards remote working due to COVID-19. However, the acquisition was originally negotiated last May and the sudden emergence of COVID-19 was purely happenstance. Nonetheless, it’s safe to say, the effects of the virus have enhanced the number of opportunities available to Verizon with their acquisition of BlueJeans.

According to a 2020 market research report by Grand View Research, the global market for video conferencing has a forecasted CAGR of 9.9% from 2020 to 2027. The main drivers for this expected growth 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 in the post-Coronavirus world and BlueJeans will be able to capitalize on its position as one of the leading business to business video conferencing platforms.

“BlueJeans will be deeply integrated into Verizon’s 5G product roadmap, providing secure and real-time engagement solutions for high growth areas such as telemedicine, distance learning and field service work,” - Verizon statement announcing the deal.

Risks and uncertainties

The acquisition of BlueJeans receives speculation of potential fair competition concerns. Verizon could focus on expanding its reach and providing more support for BlueJeans compared to competitors who use Verizon’s internet services.

It is uncertain if the rapid growth of the video-conferencing market will sustain past the COVID-19 epidemic as the shelter in place mandates are lifted. The need for such software could be less important when people will be able to communicate in person and work in traditional offices.

Within the deal terms, BlueJeans employees will become Verizon employees as soon as the acquisition is finalized. The transition might not be easy between the two companies as there are generally culture differences between startups and large corporations. The transition could lead to disunity between the two newly integrated firms, akin to the Sprint, Nextel failed acquisition.

With the various already established video-conferencing products, it is uncertain whether Verizon will be able to differentiate in a significant way. Existing software is well-developed, well-known, and optimized for users around the world. Verizon will have to find a way to innovate 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. This could limit the amount of businesses Verizon could offer BlueJeans’ product to. If 5G is going to be Verizon’s selling point for BlueJeans, the marketability of BlueJeans might take several years to come into full effect, as they build the necessary infrastructure for the network.


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