Limelight Networks, Inc., a leading provider of edge enabled web applications and content delivery solutions, has announced that it has entered into a definitive agreement to acquire Yahoo’s Edgecast, Inc., 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 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.
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.
“By uniting Limelight and Edgecast, we are building a powerful application, content and video edge enabled solutions company that delivers improved customer performance, productivity and security for the outcome buyer. Together we have a strong value proposition to serve the fast-growing, yet fragmented edge solutions market and our combined capabilities will accelerate our ability to capture more share of this high growth $40 billion total TAM. In six short months we have taken our TAM from $12 billion to $40 billion and with the acquisition of Edgecast, we are further accelerating and solidifying our ability to be recognized as a leader in edge software solutions for the outcome buyer.
At Yahoo, we are focused on driving value creation for our business and customers,” said Jim Lanzone, CEO of Yahoo. “By spinning off Edgecast to merge with Limelight, the new company will immediately become the leader in the massive and growing edge solutions market. I am confident in the value and strength of this combined company, and the growth it will drive for Yahoo, Edgio and Apollo.”Bob Lyons, Chief Executive Officer, Limelight
With a significant equity investment in the combined company from its existing ownership of Yahoo, the Apollo Funds are committed to supporting the growth strategy and innovative vision for the combined company. In addition, the all-stock nature of the proposed transaction reflects the Apollo Funds’ confidence in continued momentum in the edge enabled technology revolution and support of the vision for the combined company to become an edge computing leader with a scaled solutions platform, deeply experienced management team and commitment to delivering performance, connectivity and security to clients and end-users globally.
“Ever-increasing consumer demand for faster performance, enhanced security and higher-quality digital content has fundamentally changed how and where companies deliver value online to end users. As the market continues to rapidly evolve and expand, the combination of Limelight and Edgecast will have greater strength and scale to capitalize on these trends and better serve its clients. We believe this is a transformative transaction and are thrilled to back this management team as shareholders and board members to support Edgio in its exciting next phase.”Apollo Partner Reed Rayman, who will join the combined company’s Board of Directors
Under the terms of the agreement, Yahoo will initially receive approximately 72.2 million shares of Limelight common stock, subject to customary closing adjustments, valuing Edgecast at approximately $300 million based on the 30-day trailing VWAP of $4.12. The purchase price also includes a $30 million investment in the combined company by Apollo and their co-investors, through their ownership of Yahoo. Yahoo can also receive up to an additional 12.7 million shares of Limelight, representing up to an additional $100 million in deal consideration, over the period ending on the third anniversary of the closing of the transaction, subject to the achievement of certain share-price targets. Upon closing of the transaction, current Limelight stockholders will own approximately 68.1% of the combined company, or approximately 64.5% under the assumption that Limelight achieves all share price targets under the conditional consideration agreement, while Yahoo will own approximately 31.9% or 35.5%, respectively.
The transaction, which has been unanimously approved by the Board of Directors of both companies, is currently expected to close in the second half of 2022, subject to receipt of regulatory approvals and the satisfaction of other customary closing conditions.
Leadership and Governance
In anticipation of the transaction, Limelight will rebrand as Edgio, with the combined company continuing to operate as Edgio following close. Mr. Lyons will continue to lead Edgio as CEO after the combination, and its Board of Directors, which will expand to nine members post-closing, will include three new members appointed by the Apollo Funds. The new Board will be more closely aligned to Edgio’s go-forward strategy and work closely with Mr. Lyons and the Edgio management team to leverage their combined skills and experience to enhance shareholder value.
At approximately 8 a.m. ET / 5 a.m. PT today, Limelight will host a conference call for investors. Interested parties can access the call by dialing 1 844 200 6205 from the United States or 1 929 526 1599 internationally, with access code 871570. The conference call will also be audio cast live from http://www.limelight.com and a replay will be available following the call from the Limelight website.
Goldman Sachs & Co. LLC is serving as financial advisor to Limelight, and Goodwin Procter LLP is serving as legal counsel. Evercore and RBC Capital Markets, LLC are serving as financial advisors to Edgecast and the Apollo Funds, and Paul, Weiss, Rifkind, Wharton & Garrison LLP is serving as legal counsel.