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December 22, 2011

Akamai Buys Cloud Start-up Cotendo for $268 Million

By Ashok Bindra, TMCnet Contributor

Server network operator Akamai (News - Alert) Technologies, Inc., has agreed to purchase cloud startup Cotendo Inc. for about $268 million in cash. As a result, the stock price rose almost 19 percent on Thursday morning in New York trading. The closing of the transaction, which is subject to customary closing conditions, including regulatory approvals, is expected to occur in the first half of 2012.

Bloomberg (News - Alert) BusinessWeek reports that this acquisition will enable the Cambridge, Mass.-based Akamai to expand its acceleration technologies for the Web-based cloud computing systems used by customers such as phone companies and social networks. Analyst Gray Powell of Wells Fargo (News - Alert) & Co. in New York thinks that this deal will help Akamai maintain its leadership position and high margins by eliminating a competitor.

According to the analyst, Akamai is paying about nine times Cotendo’s anticipated 2011 revenue of $30 million. “The ratio makes the deal expensive but worth it,” stated Powell. The purchase price is less than the $300 million some investors had expected three weeks ago, noted Powell, who rates the stock “outperform,” wrote BusinessWeek reporter Alex Sherman.

In a statement, Akamai’s president and CEO Paul Sagan said, "As we look to accelerate growth across the dynamic landscapes of cloud and mobile optimization, we are excited to be joining forces with Cotendo." He added, "Cotendo's technology, partnerships and people are a strong complement to Akamai. Together, we believe there is tremendous opportunity for our combined technologies as enterprises embrace the move to the cloud and seek solutions for an increasingly mobile world."

As per the BusinessWeek report, investors in Sunnyvale, Calif.-based Cotendo include venture- capital firms Sequoia Capital and Benchmark Capital, as well as Juniper Networks (News - Alert) Inc. Half of Cotendo’s 100 employees are based in Israel, where the company operates a technology center.

According to BusinessWeek, this is second largest acquisition deal for Akamai. In 2000, the company bought InterVU, Inc.for $2.19 billion.

Ashok Bindra is a veteran writer and editor with more than 25 years of editorial experience covering RF/wireless technologies, semiconductors and power electronics. To read more of his articles, please visit his columnist page.

Edited by Tammy Wolf
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