Akamai Technologies, the Cambridge, Mass.-based content delivery network that powers services such as Apple’s iTunes music store, is in talks to acquire San Diego-based competitor Nine Systems, according to those familiar with the two companies.
The transaction price is being pegged at around $150 million, or roughly nine times revenue. Our sources say that the deal could be announced sometime later this month, perhaps as soon as Tuesday. But as they say, nothing is final till it is final. Nine Systems’ spokeswoman declined to comment, pointing out that it was company policy not to comment on rumors and speculation. We are still waiting to hear back from Akamai.
Some view Akamai’s CDN business as ripe for commoditization. Andrew Schmitt is one of them, and he has some good reasons. Additionally he sees emergence of networks such as Brightcove a challenge to parts of Akamai’s business.
Nine Systems specializes in streaming rich media over the Internet, and will become a value-added service for Akamai, which needs to add more such services in order to fight off commoditization of its CDN business, when that happens. Its customers include the NHL, the NBA, CBS SportsLine, CinemaNow, Universal Music Group, EMI Music, Amazon, and Fox.
Andrew is right when he says all expectations are priced into the stock. In 2006 alone, Akamai stock is up 150% and is currently hovering around $50 a share. By buying companies like Nine, Akamai is putting that currency to good use.
Akamai has been rumored to be one of the bidders for Savvis’ CDN business, though that deal is yet to come to a conclusion. The CDN market has been on fire lately, and has seen some hectic M&A activity. Internap had acquired Vitalstream for $127 million earlier this year, while Limelight Networks raised a whopping $130 million earlier this year from private equity investors.