No Value To Akamai In Acquiring Limelight Networks

In my eyes, there has been too much talk in the past few days from some analysts saying that Akamai should purchase Limelight. What I don’t see any of them explaining is what value that would have to Akamai other than to say it will remove a competitor from the market. So far, that’s all I see them saying. But what about the negative impact that acquiring Limelight could have on Akamai’s business? You don’t hear any of them talking about that or even running the numbers to see just how much Akamai would have to spend.

If Akamai acquired Limelight, they would have to spend a great deal of time and internal resources to see the acquisition through completion. Lots of technical resources would be expended by Akamai to transition customers over to the Akamai network and deal with all of the integration hassle. Akamai just spent the past two years doing all of the integration work from their acquisition of Netli and Nine Systems. The last thing they need right now is to take on more integration work that would be a lot more complex than the last two were. Plus, is now the right time for Akamai to be focusing on anything other than their core business? With the lower than expected guidance Akamai gave last week in their Q2 earning call, Akamai needs to continue to focus on their core business and growth. Acquiring a $100+ million dollar business is not the way to do that and I think Akamai is smart enough to know that.

In addition, Limelight would not be cheap. Even with the shadow that Limelight is under due to Akamai’s patent suit, Limelight is still close to doing $125 million this year in revenue. Akamai’s would still have to pay over $400 million for Limelight, even if Limelight eventually have to pay some sort of penalty to Akamai. Limelight is not is a desperate situation. They have cash, they have customers and they are not going away anytime soon. And if for some reason things got so bad at Limelight that they had to sell, you know they would shop the company to multiple players others than Akamai and get as much as they could for it. There is a good bet that many would pay more for Limelight, think telcos, than Akamai would be willing to.

But lets look past that and say Akamai acquired Limelight. What do they get? They don’t need Limelight’s network, don’t need their hardware and infrastructure, Limelight has no granted patents that I am aware of and has no applications or ecosystem components they own. Yes, Limelight has customers and revenue, which is all Akamai would want. But, what percentage of Limelight customers would Akamai keep in an acquisition? My bet would be less than 40%. If Limelight does $125 million this year, Akamai would add roughly $50 million to their top line revenue. And with 20 of Limelight’s customers making up 50% of their revenue, clearly Akamai could very easily get much less than 40% of Limelight’s revenue. And keep in mind that Microsoft likes to spread their business around to multiple CDNs. So the idea that all of a sudden Microsoft or other large content owners would all of a sudden consolidate all of their business with Akamai, or any single provider, just isn’t happening.

So does it make sense for Akamai to spend at least $400 million to acquire Limelight, have to use a lot of internal resources, increase their revenue by a small percentage and do all of that just to remove a competitor from the market? I don’t think so. I think too many people are looking to when Akamai sued Speedera and then acquired them and think the same will happen to Limelight. Great, but that’s not a fair comparison. The quarter before Speedera was acquired, Speedera did just over $8 million in revenue. Limelight is averaging 4x that per quarter. Speedera was acquired for $130 million in Akamai stock. It would take at least 3x that in order for Akamai to acquire Limelight.

That’s not to say that Akamai can’t acquire Limelight, anything can happen. But I don’t see any reason why they would or what they would get from it. Someone thinks otherwise, other than you own stock and want to see it happen, happy to hear it in the comments section.