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Verizon acquires Edgecast

Ajit Deshpande - - 0 Comments

Last week, telecom giant Verizon announced the acquisition of CDN startup Edgecast Networks for a price that is rumored to be in the $390 million range. Edgecast is a six year old, Los Angeles based, profitable startup that has annual revenues of more than $100 million and more than 6,000 customers.

From a monetization leverage standpoint, the CDN business might be one of the toughest out there. As an entity that hosts content and delivers it optimally, yet does not own the content itself, a CDN sits smack in the middle of the Telco/infrastructure vs content owner/OTT debate. CDNs have no subscribers to call their own like the Telcos do, and so their revenues mainly accrue from the OTT players, the largest of which, including Amazon, Google and Netflix, are already building their own CDNs. Against that backdrop, the acquisition of Edgecast works well in that the CDN gets a parent with deep pockets and the telco boosts its content delivery capabilities while getting thousands of new customers. While the acquisition itself was also great for investors ($74 million total in so far), the exit was curious in that Edgecast had just recently raised $54 million, yet despite the money, the revenue growth and the profitability, Edgecast’s acquisition revenue multiple of 2-4x is much lower than market leader Akamai’s own current revenue multiple of approx. 5.5x. The reasons for this could be various: founders wanting to cash out after six years of solid effort, a long ongoing M&A process culminating in a deal, revenue being ‘lower quality’ (read lower margins) due to a higher services component, or just the realization within the company that standalone pure-play CDN wasn’t long term feasible. Irrespective, the field of pure-play CDNs is now a bit narrower, and one more reasonably successful infrastructure exit is in the books.

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