Akamai Technologies Makes Strategic Purchase of Cotendo

 
 
By Frank Ohlhorst  |  Posted 2011-12-23 Email Print this article Print
 
 
 
 
 
 
 

Network services operator Akamai improves its market presence and enhances its Web acceleration technology with the $268 million cash purchase of startup competitor Cotendo.

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."

 
 
 
 
 
Frank Ohlhorst Frank J. Ohlhorst is the Executive Technology Editor for eWeek Channel Insider and brings with him over 20 years of experience in the Information Technology field.He began his career as a network administrator and applications program in the private sector for two years before joining a computer consulting firm as a programmer analyst. In 1988 Frank founded a computer consulting company, which specialized in network design, implementation, and support, along with custom accounting applications developed in a variety of programming languages.In 1991, Frank took a position with the United States Department of Energy as a Network Manager for multiple DOE Area Offices with locations at Brookhaven National Laboratory (BNL), Princeton Plasma Physics Laboratory (PPL), Argonne National Laboratory (ANL), FermiLAB and the Ames Area Office (AMESAO). Frank's duties included managing the site networks, associated staff and the inter-network links between the area offices. He also served at the Computer Security Officer (CSO) for multiple DOE sites. Frank joined CMP Technology's Channel group in 1999 as a Technical Editor assigned to the CRN Test Center, within a year, Frank became the Senior Technical Editor, and was responsible for designing product testing methodologies, assigning product reviews, roundups and bakeoffs to the CRN Test Center staff.In 2003, Frank was named Technology Editor of CRN. In that capacity, he ensured that CRN maintained a clearer focus on technology and increased the integration of the Test Center's review content into both CRN's print and web properties. He also contributed to Netseminar's, hosted sessions at CMP's Xchange Channel trade shows and helped to develop new methods of content delivery, Such as CRN-TV.In September of 2004, Frank became the Director of the CRN Test Center and was charged with increasing the Test Center's contributions to CMP's Channel Web online presence and CMP's latest monthly publication, Digital Connect, a magazine geared towards the home integrator. He also continued to contribute to CMP's Netseminar series, Xchange events, industry conferences and CRN-TV.In January of 2007, CMP Launched CRNtech, a monthly publication focused on technology for the channel, with a mailed audience of 70,000 qualified readers. Frank was instrumental in the development and design of CRNTech and was the editorial director of the publication as well as its primary contributor. He also maintained the edit calendar, and hosted quarterly CRNTech Live events.In June 2007, Frank was named Senior Technology Analyst and became responsible for the technical focus and edit calendars of all the Channel Group's publications, including CRN, CRNTech, and VARBusiness, along with the Channel Group's specialized publications Solutions Inc., Government VAR, TechBuilder and various custom publications. Frank joined Ziff Davis Enterprise in September of 2007 and focuses on creating editorial content geared towards the purveyors of Information Technology products and services. Frank writes comparative reviews, channel analysis pieces and participates in many of Ziff Davis Enterprise's tradeshows and webinars. He has received several awards for his writing and editing, including back to back best review of the year awards, and a president's award for CRN-TV. Frank speaks at many industry conferences, is a contributor to several IT Books, holds several records for online hits and has several industry certifications, including Novell's CNE, Microsoft's MCP.Frank can be reached at frank.ohlhorst@ziffdavisenterprise.com
 
 
 
 
 
 
 

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