Edgecast valued at $120 million upon closing deal with Limelight Networks
In June, Edgio (NASDAQ: EGIO) closed the acquisition of Edgecast from Yahoo (Apollo Global Management) and it was widely reported that the deal for the company valued Edgecast at nearly $300 million, which is incorrect. While the initial value of Edgecast was $185 million, Apollo gave Edgio $30 million in cash as part of the deal. They also paid Edgio a second cash payment of $35 million for customary working capital adjustments, in exchange for 8 million shares of Edgio, the newly merged entity comprised of Limelight, Layer0 and Edgecast. You could say that if you subtract the $65 million in cash Apollo gave Edgio, Edgecast was really valued at $120 million, less than half of Edgecast’s $285 million revenue in 2021. Here’s a breakdown of the terms of the deal.
Yahoo received 72 million shares of Edgio for the acquisition based on a locked-in 30-day VWAP (volume-weighted average price) of $4.12 per share. But the effective price of Limelight shares (Limelight has since changed its ticker symbol and now trades under EGIO) at the close was around $2.30, so the net price paid by Edgio based on the shares issued and their market value was around $165 million.
As occurs in all M&A situations, there are typical closing working capital adjustments of approximately $35 million. Essentially, Edgecast was coming in with about $35 million in additional assets. So Apollo, who was bullish on Edgio’s new strategy, decided to take 8 million shares in exchange for the assets. Apollo only got 8 million shares for this investment as it was based on the locked deal at the VWAP price of $4.12. So, in effect, Edgio issued an additional 8 million shares to Apollo in exchange for an additional $35 million in cash at closing pegged to Edgio’s locked-in VWAP price of $4.12. A premium of 68% over the current price.
Yahoo (Apollo) may also receive up to 12.7 million additional shares of Edgio, representing up to $100 million in additional consideration, over the period ending on the third anniversary of the closing of the transaction, subject to subject to the achievement of the target share price. Edgio shareholders now own about 65% of the combined company, while Yahoo will own about 35% respectively.
The end result of the deal is that Limelight more than doubled its revenue to $185 million and also got an additional $65 million in cash to go along with it. It can therefore be argued that Limelight’s final net price for Edgecast was around $120 million for the transaction. This is by far the best deal we have ever seen negotiated by a CDN provider when acquiring a rival CDN, where the business was not sinking.
Note: I have never bought, sold or traded shares of a company that offers content delivery services – ever. Even in my managed accounts, no CDN provider is included. I don’t make money in any way, based on the share price of any CDN provider.
Editor’s note: The summary bullet points for this article were chosen by the Seeking Alpha editors.