Akamai
Technologies, which has made its name providing content delivery networks
designed to boost Web performance for high-bandwidth uses such as video and big
data, is looking to expand its market share with the purchase of competitor
Cotendo.
The
$268 million cash purchase is Akamai's second largest after the $2.19 billion
acquisition of InterVU in 2000, according to data compiled by Bloomberg. Akamai
has a market value of $5.68 billion and about 2,300 employees. It has declined
33 percent this year.
The
deal helps Akamai "maintain its leadership position and high margins"
by eliminating a competitor, according to a research note from Gray Powell, an
analyst at Wells Fargo & Co. in New York. Akamai is paying about nine times
Cotendo's anticipated 2011 revenue of $30 million, according to Powell. The
ratio makes the deal "expensive but worth it," he said. The purchase
price is less than the $300 million some investors had expected three weeks
ago, said Powell, who rates the stock "outperform."
Founded
in 2008, Cotendo is headquartered in Sunnyvale, Calif. More than half of its
100 employees are based in Israel, where the company maintains an engineering
facility. Juniper Networks and AT&T had also reportedly been in the market
to buy out Cotendo. Both are strategic partners of the firm, which has raised
about $39 million from California venture capital firms Benchmark Capital,
Sequoia Capital and Tenaya Capital. Juniper is a strategic investor, as is
Citrix Systems.
Cotendo's
founders are CEO Ronni Zehavi, research chief Udi Turgeman and tech chief David
Drai, all former executives at Commtouch Software.
"As
we look to accelerate growth across the dynamic landscapes of cloud and mobile
optimization, we are excited to be joining forces with Cotendo," said Paul
Sagan, president and CEO of Akamai. "Cotendo's technology, partnerships
and people are a strong complement to Akamai. Together, we believe there is
tremendous opportunity for our combined technologies as enterprises embrace the
move to the cloud and seek solutions for an increasingly mobile world."
"The
Cotendo team is very proud of our accomplishments in delivering proven and
effective solutions for accelerating Web and mobile assets," said Zehavi. "By
combining our innovative technology and employees with Akamai, we expect our
customers and partners will gain access to a comprehensive, global platform and
wider portfolio of leading-edge services supported by some of the most
experienced providers in the industry. We look forward to working with Akamai
in an effort to create the strongest offering in the industry."
Under
terms of the agreement, Akamai will acquire all of the outstanding equity of
Cotendo in exchange for a net cash payment of approximately $268 million, after
expected purchase price adjustments, plus the assumption of outstanding
unvested options to purchase Cotendo common stock. The closing of the
transaction, which is subject to customary closing conditions, including
regulatory approvals, is expected to occur in the first half of 2012.
At
least one analyst believes the deal is bad for the industry and customers.
"While
this acquisition is great for Akamai and their business, it's bad for the
industry and for customers as a whole," said Dan Rayburn, principal
analyst at Frost & Sullivan, in a blog post.
Rayburn
backed that assessment:
"Competition
is a good thing because it makes companies innovate faster, helps foster
quicker adoption of technology, drives pricing down in the market and with more
companies selling the same service, it creates awareness in the market. With
Akamai taking out Cotendo, they have locked up the market for app acceleration
and mobile acceleration and are the clear leader, in terms of revenue, for DSA
offerings. That's not to say that others won't compete over time (Amazon will),
but Cotendo was really the only company that was getting some good traction in
the market for these services, had some real revenue and customers to show for
it and was putting pressure on Akamai."
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