Rumors that Limelight Networks (NASDAQ:LLNW, news, filings) was talking M&A turned into reality this morning, but not in the direction of its CDN - yet anyway. Limelight is selling its EyeWonder business to DG, formerly DG FastChannel, which specializes in ad delivery across a variety of media. The purchase of EyeWonder will give DG a greater presence in the internet advertising vertical, whereas Limelight is clearly in the midst of a major directional shift.
The purchase will cost DG $66M in cash, which is a bit more than half of the $110M that Limelight paid for the asset two years ago. DG says that EyeWonder is expected to generate $36-37M in revenue for the full year 2011, and that there will be $7M in cost synergies derived in the first twelve months. The deal is expected to close by the end of September.
One wonders just where Limelight is heading right now, given that they are rumored to be interested in getting out of the commodity CDN business while also selling off a major piece of the stuff they bought specifically to diversify away from that business. It seems to me that this deal may reinforce the possibility of a sale of the rest of the company in the near future. Dan Rayburn's possibility of Level 3 being the buyer is still something I view with suspicion, yet today's deal perhaps makes a deal like that a bit more likely. The EyeWonder assets would hold no interest to Level 3, or another carrier for that matter. In fact, it was in part the purchase of EyeWonder that (temporarily) quenched the rumors that Limelight would sell out to a carrier back then.
DG has been acquisitive over the years. They acquired MediaMind earlier this summer, and also bought the Vyvx advertising distribution business from Level 3 back in 2007.
[EDIT] Limelight followed up with its own press release, updating its guidance and announcing a $25M share buyback program. Taking out the EyeWonder revenues, Limelight now expects Q3 revenues of $46.1-47.3M, with the non-EyeWonder portion being $41.5-42.5M going forward.
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