Limelight Networks, Inc. a leading provider of edge enabled web applications and content delivery solutions, announced that it has entered into a definitive agreement to acquire Yahoo’s Edgecast, Inc. (“Edgecast”), a leading provider of edge security, content delivery and video services, in an all-stock transaction. The transaction values Edgecast at approximately $300 million, or about 1x 2021 revenue. Edgecast is a business unit of Yahoo, which is owned by funds managed by affiliates of Apollo (the “Apollo Funds”) and Verizon Communications Yahoo will receive approximately 72.2 million shares of Limelight common stock, subject to customary closing adjustments, and will own approximately 31.9% of the combined company at closing.
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The combination will create a globally scaled, edge enabled software solutions provider with pro forma 2021 revenue of more than $500 million across cloud security and web applications, content delivery and edge video platform. In anticipation of the transaction, Limelight will rebrand as Edgio, with the combined company continuing to operate as Edgio following close. With global scale, a leading distributed edge platform and increased focus on security and connectivity, Edgio will be a leading solutions provider of choice for outcome-oriented businesses and clients looking to deliver a fast, secure and frictionless digital experience to end-users.
Compelling Strategic Rationale and Financial Benefits
Expands Scale and Strengthens Platform to Better Deliver Blue-Chip Customer Performance, Productivity and Protection Through Edge Computing Solutions: The combined company will be a leading global, edge enabled solutions provider with a global network capacity of more than 200 Tbps and more than 300 PoPs coupled with natively integrated cloud security, edge video platform and web applications to power the next generation of customer needs. Limelight and Edgecast’s current combined, diversified customer base includes Fortune 100 clients, as well as some of the world’s leading technology companies, streaming services and most visited websites, including Amazon, Coach, Disney, First Republic Bank, HBO Max, Hulu, Yahoo, British Telecom, Verizon, Microsoft, Peacock, Sony, TikTok and Twitter.
Accelerates Penetration of High Growth $40 Billion Total Addressable Market (TAM): The transaction is expected to accelerate Limelight’s ability to serve its total addressable market of approximately $40 billion, through expanded capabilities, portfolio targets and new opportunities across OTT video, cloud security and enterprise secure access, in addition to existing content delivery and web applications solutions.
Diversifies Revenue Mix and Strengthens Financial Profile: On a combined basis, the two companies generated $502 million in revenue in 2021. Edgecast generated $285 million in revenue in 2021, of which approximately 97% was recurring revenue from a highly complementary customer base with little Limelight overlap and nearly half coming from high-growth, high-margin products. The combination is expected to more than double Limelight’s annual revenue, expand gross margin, increase recurring revenue growth and further diversify revenue among key clients.
Creates Robust $100 Million Web Applications Solution with Expanded Security Capabilities: Edgecast’s multi-layered cloud security platform will significantly enhance the scale of Limelight’s web applications division with projected revenue of more than $100 million. These solutions will provide a holistic cloud platform for web apps and APIs that increase performance of digital assets, accelerate application usage, provide robust protection and enhance developer productivity and capability.
Substantial and Immediately Accretive Cost Synergy Opportunities: The transaction price of $300 million implies an acquisition multiple of approximately 1x Edgecast’s 2021 revenue. The combined company expects annual run-rate cost synergies of $50 million including approximately $30-35 million from reduced colocation and internet peering expense, and approximately $15-20 million of operating expense savings. Based on the expected revenue and expense synergies, Limelight has established a long-term strategic target with revenue growth rate of 20-25%, gross margin of 60%+ and adjusted EBITDA margin of 15-20%.
Adds Support from Apollo to Position for Growth: With support from the Apollo Funds, and alignment with all shareholders, the combined company will be positioned to unlock significant growth opportunities in an attractive sector and capitalize on market trends. The all-stock nature of the deal represents a strong belief by Apollo in the combined company’s go-forward strategy and future as a global leader in edge enabled software solutions.