Cambridge Internet pioneer Akamai Technologies has been on an acquisition binge over the past year as it tries to expand in cybersecurity. Now the question for Wall Street analysts is whether Akamai itself might be acquired.
No offer has been made public, and the company declined to comment, but rumors have been swirling since the summer that Akamai has landed in the sights of one or more private equity firms.
“At the current depressed valuation, with still healthy 28 percent operating margins... Akamai looks like an attractive target for private equity,” Needham analyst Alex Henderson wrote in a report last week addressing the speculation.
It’s not hard to see why Akamai is an appealing target for a takeover. With its stock price down 29 percent since March, the company’s stock market value has sunk to less than $14 billion. That’s in the ballpark of recent private-equity tech takeovers, including last year’s $14 billion purchase of McAfee and the $12 billion deal for Proofpoint.
And while Akamai’s original business of helping distribute Internet content is shrinking, chief executive and cofounder Tom Leighton has built a growing cybersecurity business. The company is still profitable and on track to generate more than $1 billion in cash from its operations this year.
Using Wall Street’s financial engineering toolbox, a debt-backed acquisition and split-up of content delivery and cybersecurity could be worth far more than the current stock price, according to analysts. Greg Miller at Truist Securities estimated a “sum of the parts” value of $150 per share for Akamai, close to double the current stock price of around $87.
Such a deal would not appear to be good for the Boston tech scene, however.
Private equity buyers of public companies typically focus on slashing costs, and jobs, to help pay down debt faster. A split-off, or sale, of Akamai’s faster-growing but less profitable cybersecurity unit likely would bring job losses. And in stressful economic conditions, companies that have gone through leveraged buyouts are more likely to file for bankruptcy. (To be sure, some private equity deals have helped struggling companies get back on track away from the glare, and quarterly earnings reports, of the public market.)
That would be a sad end for Akamai, one of the few big, independent tech companies remaining in Boston. The homegrown anchor, which survived a wild ride during the Internet bubble, has also been a major source of local entrepreneurship, with former employees founding dozens of startups.
Again, no offer for the company has been made public, and there are a few hurdles.
For one, the Federal Reserve’s moves to raise interest rates and slow the economy—which have hurt the stock prices of tech companies like Akamai—are making it more difficult to finance debt-backed takeovers. The banks that committed to lend $13 billion for Elon Musk’s Twitter takeover reportedly face losses of more than $500 million on the deal because of rising rates, hardly an encouraging sign to other would-be acquirers.
The other challenge may be further declines in Akamai’s business. On November 8, analysts expect the company will report third-quarter revenue of $876 million, reflecting growth of less than 2 percent from a year earlier, and earnings per share of $1.22, a 16 percent decline.
Akamai missing expectations in the current tough borrowing environment “makes consummating a deal much more challenging,” Needham analyst Henderson noted.
For the local tech scene, that might not be the worst outcome.