Akamai Technologies, Inc. of Cambridge, Massachusetts is one of the true internet success stories, with $1,600,000,000 of annual revenues and EBITDA of about 44%. A disciplined pursuit of M&A opportunities has driven part of this growth, as reported by Vice President of Corporate Development Jeremy Segal at the May 29th ACG meeting here in Boston.
Some of the criteria applied by Akamai, in evaluating a target, are standard and not surprising: business fit, cultural fit, non-dilution of earnings. Several other articulated benchmarks have not yet proven significant given the size of deals undertaken, although with $1.5B of cash in the bank they may ultimately become germane: for example, Akamai asks “is the acquisition more than 10% of our market cap” and “will the acquisition increase our head count by more than 10%.”
Segal’s presentation showed a mix of organic growth and a measured pace of M&A. He claims that 90% of IP traffic by 2015 will be media over IP, he sees a huge explosion of internet-connected devices of all sorts, and he notes his company’s movement into protecting the integrity of the internet based upon a 50 times increase in cyber-attacks since 2009.
Akamai also is increasing investments in emerging technology companies, likely for the first time considering A Rounds (as opposed to more mature situations). In making investments, they look for a board observer and a right to receive notice of potential transactions (he observed that rights of first refusal are not realistic in venture capital environments).
One interesting touch-point in Akamai’s M&A practice involves cultural integration after an acquisition. Akamai starts looking at that issue early, typically at the LOI stage, to make sure that upon closing the integration is far along, while also identifying specific cultural touch-stones in the target which are to be preserved.