The M&A story that has been brewing over the weekend has Akamai (NASDAQ:AKAM, news, filings) making a serious bid for Cotendo. Cotendo plays at the high end of the content delivery market, offering dynamic site acceleration, application acceleration, and mobile content acceleration, and has been making rapid inroads all year with several hundred customers already. The supposed deal has been pegged by various reports at around $300 or even perhaps $350M according to one.
Either of those figures would amaze me given that the market currently gives Limelight Networks (NASDAQ:LLNW, news, filings) a market cap of $272M despite net cash of $143M and much greater scale. Of course, Cotendo does have an innovative product set and rapid growth, but $350M? Cotendo has said it's not for sale, but any company will consider an offer high enough, and heck I'd sell too at $300M if I were Cotendo. Funding rounds for the company were just $9M in 2009, $12M in 2010, and $17M in 2011. Maybe there were others I don't know about, but it seems unlikely to change the fact that $300M would be a very attractive return on investment for those early investors. We'll just have to see if this supposed price holds up.
I have now and then speculated that Akamai might take aim at infrastructure rather than managed services for M&A. Long term, those with fiber should be able to derive a cost advantage from any service that delivers enough bits, and Akamai is better positioned to go after Cotendo-like functionality organically than it is to build out fiber of its own. But if this report is true then Akamai certainly isn't moving down that path yet in any form, which would be consistent with their stance of many years and also with their current leaning toward embracing and living within the cloud and moving up the food chain to counteract commoditization in the CDN space.
As usual, the most comprehensive look at the rumored deal comes from Dan Rayburn, who actually called for Akamai to do something just like this back in September. Dan suggests that AT&T (NYSE:T, news, filings) had right-of-first-refusal on buying Cotendo but isn't willing to offer enough, and that Juniper Networks (NASDAQ:JNPR, news, filings) has been nosing around (they already own a stake). I don't see any telcos other than AT&T even showing up at the table for this one, if Akamai wants it badly enough there's nobody else out there that would match them. But while Dan puts Akamai in the driver's seat here, I think it's actually Cotendo that'd be the one calling the shots if this rumor is true.
Such a deal may also prompt additional consolidation in the space, with LimeLight finally making up its mind about whether to fish or cut bait and perhaps Level 3 taking a closer look at new products as well.
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