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Limelight Agrees to Buy Up EyeWonder for $110M

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Limelight Networks (s LLNW), in a bid to get into the fast-growing online ad-serving business, has agreed to purchase EyeWonder for $110 million in cash and stock. The company expects the deal, which it hopes will close in the first half of 2010, to add some $40 million in annual revenues and to substantially boost Limelight’s gross margins as it attempts to move away from a high-capital, low-margin commodity CDN business.

Of the $110 million that Limelight has agreed to pay for EyeWonder, $62 million will be in cash, plus 12.74 million shares of Limelight stock worth some $48 million. An additional 4.86 million shares could be issued in 2011 if EyeWonder achieves certain financial results in 2010. On an investor call announcing the deal, Limelight CEO Jeff Lunsford said the acquisition is expected to be accretive on a pro forma basis by the end of 2010.

EyeWonder will provide a fast-growing and high-margin revenue stream to complement Limelight’s existing CDN business. According to Lunsford, the ad-serving company is expected to have sales of $32-$35 million in 2009, with gross margins in excess of 70 percent. That revenue grew 40 percent on capex of less than $1 million over the past year, according to Lunsford, and Limelight expects EyeWonder’s sales to rise an additional 30 percent in 2010.

EyeWonder will also bring a number of new customers to Limelight — more than 800 interactive agencies worldwide — which will help the CDN move further into the enterprise market. At the same time, Limelight believes it can help introduce EyeWonder to more media companies and publishers that could leverage its interactive ad-serving platform to monetize their media assets. The combined company will have more than 2,500 customers.

EyeWonder had already used Limelight’s CDN for the majority of its ad serving, which should come as a competitive advantage as it will now operate within the network at no additional cost. “The biggest cost of the business is the CDN side of the business,” said EyeWonder founder and CEO John Vincent on the investor call. While EyeWonder has a partnership with Limelight rival Akamai Technologies (s AKAM), Lunsford said that the ad firm would operate as an independent business unit and would continue to service customers in an open way.

This is the second acquisition that Limelight has announced in 2009 aimed at expanding beyond the commodity CDN market into more high-value services. It bought Kiptronic earlier this year to expand more deeply into mobile content distribution.