The deal talk this weekend focused on content delivery network Cotendo, which was rumored to be in talks with sector leader Akamai Technologies about an acquisition that could value Cotendo at $300 million or more. On Sunday reports emerged that two of Cotendo’s strategic partners, AT&T and Juniper Networks, were also expressing interest.
“If Akamai acquires Cotendo it would be a great win for the company on multiple levels,” writes Dan Rayburn at the Business of Video. “Akamai has really fallen behind when it comes to launching new products in the market and is getting beaten by the smaller and more nimble Cotendo. Acquiring Cotendo would be one the best acquisitions for Akamai that they could make as it would allow them to take their number one competitor for non-CDN services out of the market.”
Akamai (AKAM) has often expanded through acquisitions of competitors, including Nine Systems, Netli and Velocitude. Rayburn, who has closely tracked the content delivery market, recently noted that Akamai needs to adapt to changing conditions in the content delivery sector.
Implications for Pricing?
While a deal for Cotendo might help Akamai, Rayburn says it could have implications for the broader market for CDN services. “Akamai would see almost no pricing pressure for their value add services going forward, margins would remain high and they would capture a larger share of the market for value add services,” writes Rayburn. “Of course while all of this would be good for Akamai, it would be bad for the industry and customers as a whole since no other vendor is yet able to compete with Akamai on these services at scale. The outcome would be higher pricing in the market and not a lot of alternatives other than Akamai for customers to use.”
Rob Powell at Telecom Ramblings noted that the rumored pricing could provide a successful exit for Cotendo’s investors. “Funding rounds for the company were just $9M in 2009, $12M in 2010, and $17M in 2011,” Powell writes. “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.”