Why Limelight Networks Acquired Digital Ad Company EyeWonder

This morning, Limelight Networks announced an agreement to acquire privately held EyeWonder in a cash and stock deal valued at $110 million.

The deal is expected to close sometime in the first half of next year.

After DoubleClick and maybe Pointroll, EyeWonder is one of the largest rich-media ad platforms in the space, billing about $35-$40 million in revenue for this year.

With Limelight’s 2009 projected revenue of $140-$150 million this deal should easily make the combined companies into a $200+ million organisation in 2010.

For Limelight, this is a smart move and the immediate affect is two fold. It increases their revenue by a third and more importantly, they are acquiring a company that has 70%+ margins on their business. EyeWonder’s overhead is low since they are not in the infrastructure business and this will allow Limelight to diversify their revenue with a product line that’s not competing solely on price, like we have seen in the CDN space for so long.

Already I am hearing some say that the combined EyeWonder and Limelight ad solution will compete with Akamai’s advertising solution, which is not the case. Akamai acquired acerno to get into the behavioural targeting business. EyeWonder is a platform that allows for rich-media ads on the web and within video games. Two very different ad solutions, solving two very different problems for content publishers.

Of the $110M in purchase price for this deal, Limelight is paying for $62M of it in cash. This leaves Limelight with about $100M left in the bank and I would not be surprised if we saw them make a few more smaller acquisitions in the near term.

Dan Rayburn is executive vice president at StreamingMedia.com and principal analyst at Frost & Sullivan. This post originally appeared at his blog and was republished with permission.

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