Ericsson, one of the world’s top suppliers of telecommunications equipment, today said that it’s buying enterprise networking firm Cradlepoint Inc. in a $1.1 billion deal that’s expected to close before year’s end.

Sweden-based Ericsson makes base stations and related technologies that carriers use as the building blocks of their wireless networks. Boise, Idaho-based Cradlepoint, in turn, also sells networking hardware, but mainly to organizations outside the telecommunications sector. It makes routers that companies can set up in locations such as retail stores to provide wireless connectivity.

A major driving force behind Ericsson’s purchase of Cradlepoint is the companies’ shared focus on 5G. Ericsson supplies carriers with technology for building 5G networks, while Cradlepoint’s routers enable enterprises to connect their stores and other assets to those 5G carrier networks. The latter firm has about 20,000 customers worldwide that generated $140 million in sales last year, according to the acquisition announcement.

Cradlepoint’s main differentiator isn’t its router line but rather the cloud-based network management platform it sells alongside the devices. The platform allows companies to deliver 5G coverage in a wide range of environments. Coupled with Cradlepoint routers, it can provide high-speed 5G connections in stores and factories, inside delivery vehicles and for “internet of things” hardware such as industrial sensors.

Ericsson plan is to make Cradlepoint’s products available to its carrier clients. According to the company, the technology will enable network operators to offer more sophisticated wireless solutions to their enterprise customers and open new revenue streams in the process.

“Combining the scale of our market access and established relationships with the world’s biggest mobile operators we are making a strong investment to support our customers to grow in this exciting market,” said Ericsson Chief Executive Officer Börje Ekholm (pictured). 

Cradlepoint has raised over $162 million in funding to date, according to Crunchbase. The $1.1 billion Ericsson is paying represents a respectable return for Cradlepoint’s investors, which include Airbnb Inc. backer TCV and private equity firm Sorenson Capital, among others.

One reason for the steep premium is that the Idaho-based firm not only closed 2019 with $140 million in revenues but also achieved a 61% gross margin. Additionally, Ericsson claims  that the market in which Cradlepoint competes is seeing “underlying growth” of 25% to 30%.

After the deal wraps up, Cradlepoint will continue to operate under its current brand as an independent subsidiary. It will be part of Ericsson’s Business Area Technologies & New Businesses group. Ericsson anticipates that the deal will make a negative impact of approximately 1% on its 2021 and 2022 margins, but Cradlepoint is expected to start contributing to operating cash flow starting in 2022. 

Photo: Ericsson