Over the last few weeks, numerous signs in the market point to Limelight Networks (LLNW) trying to finalize a deal to be acquired, or raise a large round of funding. While I don't have all the specifics, over the weekend I was able to confirm via a third party that Goldman Sachs, the largest shareholder in Limelight Networks, is working on a deal with Limelight that will drastically change the company and I expect it is an acquisition.
Within the past 2-3 weeks, Limelight has basically stopped talking to Wall Street and the company has yet to say when they plan to announce earnings. The company must put out earnings by August 9th, but as of now, still has not said when they plan to release (see note below)*. Limelight has been stalling as long as they can and while I'm hearing that a deal for the company is not done and no letter of intent has been signed, it sounds as if Limelight is close to a deal.
There is speculation that the company may raise another round of funding instead of being acquired, but my bet is on an acquisition. If Limelight reports good second quarter earnings and increases the percentage of their revenue that comes from value add services, it would not be a stretch for them to be able to get a high evaluation on that revenue. Companies in the industry that offer SaaS based platforms, like SalesForce.com, are currently valued at about 10x revenue. Last quarter, Limelight said 38% of their revenue was from value add, so if that number continues to grow, they could raise another large round based on that segment of their business.
If they raised enough money, they could acquired a leading company in the Data Management Platforms (DMP) market or a company that offers an end-to-end platform for managing data-driven digital advertising, which is essentially a targeting audience management platform. There are a handful of companies in the space doing this (Turn, Collective Media, eXelate, BlueKai) and some are on track to do more than $100M in revenue this year. A platform like this would fit nicely into Limelight's offering and would add a lot of top line revenue to the company overnight.
While it's not unreasonable to think the company could raise another round, my bet is on Limelight getting acquired. Of course there have been rumors for years that both Limelight Networks and Akamai (AKAM) would be acquired by Google (GOOG), Facebook, IBM (IBM) and a whole host of other players, but most of the companies like those mentioned don't make any sense. What does make sense is for Verizon (VZ), Microsoft (MSFT) or AT&T (T) to acquire Limelight for the following reasons.
Verizon recently launched their new Verizon Digital Media Services (VDMS) business and is focusing on the entire ecosystem for creating, ingesting, storing, managing, protecting, monetizing, delivering and tracking of content. The company recently said they don't plan to have the delivery component of their offering ready to go until Q2 of 2012, so acquiring Limelight would bring them to market much faster, not to mention give them access to a large library of content owners. Verizon would also get a whole host of technology around advertising and content management that their solution is currently missing. They could also take some of Limelight's service based platforms and re-position them within multiple segments of Verizon's business from wireless to enterprise. On many levels, Verizon would be one of the best fits for Limelight's current product offering.
While I don't think AT&T is involved in the discussions, the company could decide to stop spending the time and money to build up their offerings and instead, acquire Limelight and have what they need overnight. I don't think this will happen, but it's always possible. The company has changed their go-to-market strategy as of late and it's always possible they could take an even bigger approach. As for Microsoft, I'm limited in what I can say as I know some details that can't be made public, but I can reveal that Microsoft has been in discussions recently with Limelight about possibly licensing a newer version of the technology that Microsoft licensed from Limelight many years ago. And based on some other stuff Microsoft is working on, it might just make more sense for them to spend the money to acquire Limelight if they are going to have to pay for a license any way.
Of course some are going to suggest that these companies should just acquire Akamai instead since Akamai's has five times the revenue Limelight has. While that is always possible, Limelight could probably be acquired for around $700M and even with Akamai's share price being at about an 18-month low, anyone acquiring Akamai would have to pay in the billions for Akamai who currently has a $4.5B market cap. Limelight is much, much cheaper to acquire and their share price is also getting close to their 52-week low, so it's a good time for any potential acquirer. Many years ago AT&T offered $8 a share to acquire Limelight, but I was told Goldman turned it down. I get the sense that in today's market, Goldman would be more open to selling the company.
Last Tuesday was the biggest day for the acquisition rumor and Limelight's stock closed up $0.56 to $5 a share on more than 4M shares traded. Limelight has not had more than 4M shares traded in the company in more than three months. That alone is not evidence that something is about to take place, but clearly I'm not the only one hearing some details. I don't expect to hear Limelight announce anything relating to this on their Q2 earnings call, but I do think news will break in the next few weeks and we'll know for sure what they are up to.
Note: Even though I know Limelight would not comment, I did ask them for a response and was told, "Limelight does not comment on rumors or speculation."
*Updated note: Limelight says they will report earnings on August 8th