Akamai Technologies to Acquire Prolexic for $370 Million

Similar to deals in the past year for IP platform and network solutions providers Verivue and FastStop, cloud content delivery specialist Akamai Technologies (NASDAQ: AKAM  ) announced today it will add to its product suite via acquisition after signing a definitive agreement to acquire Prolexic for $370 million in cash. As of the end of September, Akamai reported cash and equivalents of $566.3 million on its balance sheet.

The acquisition will enhance Akamai's cloud-based network and data center security solutions by adding Prolexic's suite of distributed denial of service (DDoS) products. DDoS is a networkwide attack in which one computer system is compromised, and then malware is used to infect other systems on the network. By flooding the entire network with incoming messages, a DDoS attack can force a shutdown of an entire network.

Commenting on the transaction, Akamai CEO Tom Leighton said, "By joining forces with Prolexic, we intend to combine Akamai's leading security and performance platform with Prolexic's highly regarded DDoS mitigation solutions for data center and enterprise applications protection."

The deal, which is subject to regulatory and customary closing conditions, is expected to be dilutive to Akamai's non-GAAP earnings in the first year by approximately $0.06 to $0.08 per share. Akamai anticipates the transaction will close in the first half of 2014.

 

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  • Report this Comment On December 02, 2013, at 2:21 PM, trader000 wrote:

    If the transaction is 100% cash, how is it dilutive for 2014 earnings?

  • Report this Comment On December 03, 2013, at 10:02 AM, timbrugger wrote:

    trader000,

    Great question, thanks. Since Prolexic is a privately-held firm, it's not required to report quarterly financial data to the SEC so it's difficult to say for certain why the acquisition will be dilutive to Akamai. But, in general, there are a few reasons even an all-cash deal can cause a hit in the near-term; here are a few possibilities (just possibilities mind you, since we don't know for certain):

    -Prolexic is more expensive, on a relative basis, than Akamai, so assimilating it into Akamai's financials has a dilutive impact.

    -Prolexic has negative net income

    -A significant amount of amortization/depreciation is necessary based on Prolexic's intangible and/or tangible assets. Essentially, an accounting entry.

    -The loss of interest income to Akamai by using cash reserves.

    The deal could include bits and pieces of several of the factors above, too. Whew!

    Thanks again for the post! Tim.

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