Rumors that Limelight Networks (NASDAQ:LLNW, news, filings) was talking M&A turned into reality this morning, but not in the direction of its CDN – yet anyway. Limelight is selling its EyeWonder business to DG, formerly DG FastChannel, which specializes in ad delivery across a variety of media. The purchase of EyeWonder will give DG a greater presence in the internet advertising vertical, whereas Limelight is clearly in the midst of a major directional shift.
The purchase will cost DG $66M in cash, which is a bit more than half of the $110M that Limelight paid for the asset two years ago. DG says that EyeWonder is expected to generate $36-37M in revenue for the full year 2011, and that there will be $7M in cost synergies derived in the first twelve months. The deal is expected to close by the end of September.
One wonders just where Limelight is heading right now, given that they are rumored to be interested in getting out of the commodity CDN business while also selling off a major piece of the stuff they bought specifically to diversify away from that business. It seems to me that this deal may reinforce the possibility of a sale of the rest of the company in the near future. Dan Rayburn’s possibility of Level 3 being the buyer is still something I view with suspicion, yet today’s deal perhaps makes a deal like that a bit more likely. The EyeWonder assets would hold no interest to Level 3, or another carrier for that matter. In fact, it was in part the purchase of EyeWonder that (temporarily) quenched the rumors that Limelight would sell out to a carrier back then.
DG has been acquisitive over the years. They acquired MediaMind earlier this summer, and also bought the Vyvx advertising distribution business from Level 3 back in 2007.
[EDIT] Limelight followed up with its own press release, updating its guidance and announcing a $25M share buyback program. Taking out the EyeWonder revenues, Limelight now expects Q3 revenues of $46.1-47.3M, with the non-EyeWonder portion being $41.5-42.5M going forward.
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Categories: Content Distribution · Mergers and Acquisitions
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Given the little value the mkt was giving them for Eyewonder and the buyback announcement, seems like these guys may finally be managing for value.
The GOLDmen upped their (3) stake by 136 percent in q2, 2011, to approx. 1.7MM shares.
http://www.nasdaq.com/asp/holdings.asp?symbol=LVLT&selected=LVLT&FormType=Institutional
LimeLight is now sitting at approx. 2 times cdn sales with a nearly 15 percent market cap rise on this jettisoning news.
Approving or authorizing share buybacks with valuable cash on a market share losing biz, is not the same as “buying back shares.”
To waste such valuable cash like those free loaders at Akamai did, would not restore Goldmen’s tainted image, one expected to make the People bow down in awe when marveling at their golden calf.
Don’t be distracted, Powell, and stop being such a Debbie Downer. Rayburn has it right.
A repost from Dan’s site….
Level 3 or anyone else for that matter isn’t paying a 300% premium from the beginning of negotiations, nor even a 100% when the LL biz has an expiration date on it. I agree that an EYEW deal makes a LL-L3 deal more likely but I think the structure will be similar to this deal. Limelight sold this business at 1.8x revenues which is a nice price. A more capital intensive, money losing & litigious business with large competitors seems like a real argument for a lower multiple on CDN than that especially given the low opportunity for cost savings.
However, for the sake of argument, assuming the same multiple on say $125M in revenue they could sell the CDN business for $225M the same way they did with DG. $225M in proceeds plus $160M cash on hand leaves them 80c/share upside from here with no value from SaaS which maybe is $45M in revenue that GS can retain in its Private Equity portfolio as a take private transaction with a JV agreement on Level 3’s CDN business or just run it as a SPAC.
I’d be curious Dan, what’s your opinion on the revenue multiple available for the CDN business, either this one or the market more broadly given the sustained capital intensity, low(if any?) profitability outside AKAM and increasing competition.
Posted by: schmuckinsurance | Tuesday, August 30, 2011 at 01:48 PM
Honestly, I don’t know what the revenue multiple would be in today’s market. If I had to guess, I’d say a max of 3x revenue, but with the way the market has been, and with no CDN being profitable (Akamai does not count as we don’t know if their CDN business makes money), 3x would be on the high side.
Posted by: Dan Rayburn | Tuesday, August 30, 2011 at 01:55 PM
Dan makes a great argument against paying any sum to bail out this GOLDmen crew.
A savvy competitor like (3) would not need to acquire their competition while they were strong or beginning to wane–Play Station debacle–knowing that they could take “market share” without paying for them especially while considering the Global Crossing acct. crossing over to (3)’s CDN and away from Limelight it appears.
In the big picture, this company’s revenue stream is paltry, and they’re a gnat on the market shares which (3) addresses by owning $37.5B in PP&E subsequent to closing Global Crossing. I would prefer to see them kill the company, and send GOLDmen home crying.
I exclude Warren E. Buffett’s own actions in this comment when referencing the fact that he just bailed out a nemesis of his Wells Fargo stake, Bank of America (BAC), from an ensuing “RUN” to kill “too big to fail” in another sweet heart deal along with a wink and a nod from the Fraudulent Reserve for a job well done versus them doing it themselves again, and watching the public outrage come at them in the form of pitchforks.
He did this at the same time his trusty partner just lambasted B of A’s management team, along with their operations to a large group of people not much more than one month ago. Alice Schroeder is right that Mr. Buffett is going to continue to defy all previous logic his disciples once thought they understood. Pay attention to that wise woman, if you have the chance. imo
http://blog.streamingmedia.com/the_business_of_online_vi/2011/08/limelight-sells-eyewonder-business-bigger-transformation.html
Limelight told the hometown Arizona Republic that they are moving away from the “low margin” CDN business and concentrating on their SaaS business.
“Alfieri said that content delivery is a low-margin business and that the company was pursuing more profitable value-added services, such as software leasing and digital advertising, to boost its bottom line”
http://www.azcentral.com/business/articles/2011/08/30/20110830limelight-sells-eyewonder-66-mil.html