Akamai Takes to the Cloud

The cloud proved to be a big draw in 2011. Top companies spread across various business lines jumped on the bandwagon to delve into the cloud space. With tech giant IBM acquiring Web-based analytics software company DemandTec in early December and Telco CenturyLink taking over Savvis, the race to reach the cloud has sped up.

More recently, application delivery firm Akamai Technologies (NAS: AKAM) agreed to acquire cloud-based Web and mobile acceleration services provider Cotendo for a deal worth $268 million in green. Let's take a closer look.

What Cotendo brings to the table
Akamai, whose services speed up the delivery of Web content, will acquire a company that will help it do exactly that through cloud computing. Akamai CEO Paul Sagan said the deal makes sense as the company is looking to boost growth across the cloud and mobile optimization space.

According to Bloomberg, this buy would be Akamai's second largest since the acquisition of InterVU way back in 2000 for $2.19 billion. Cotendo recently raised $17 million in terms of funding from its backers, with fellow cloud provider Citrix Systems and Juniper Networks joining in as strategic investors. According to TechCrunch, Cotendo's customers include the recently listed Zynga and also social-networking giant Facebook.   

Removing threats
The deal is expected to bear fruit by the first half of this year. An interesting thing is that just a year ago the acquirer had sued the acquiree for patent infringement. The best part of the deal is that Akamai removes its only competitor from the value-added services segment, according to Richard Fetyko, a Janney Capital Markets analyst. The threat was that Cotendo might have triggered a price war in the highly lucrative space, thereby putting pressure on Akamai's margins.

Wells Fargo analyst Gray Powell believes that with Cotendo expected to earn $30 million in revenues in 2011, the price Akamai is paying may be a little exorbitant. But given what Cotendo has to offer and the technologies that Akamai will gain, the deal looks to be worth the price.

The deal, along with offering new dimensions, also made investors happy as Akamai's the stock rose 19% on the day the pact was sealed (Dec. 22), which is the most it has risen since April 29, 2010. To follow the company's performance in 2012, simply click here and add it to your personalized watchlist, and we at The Motley Fool will keep you up to date on all the latest on Akamai.

At the time this article was published Fool contributor Shubh Datta doesn't own any shares in the companies mentioned above. The Motley Fool owns shares of International Business Machines. The Fool owns shares of and has created a covered strangle position on Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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